A rising demand for milk draws financing from industrial giants, private equity firms and wealth funds, reports Wang Zhuoqiong.

The nation's dairy sector has become a magnet for money, with the latest heavyweight investor being Xu Jiayin, chairman of Ever-grande Real Estate Group Ltd. The property tycoon is reportedly

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visited potential projects in the Inner Mongolia autonomous region and Heilongjiang province where the country's best dairy farms are located.

Though Evergrande didn't confirm the purpose of Xu's trip, itwouldbeno surprise if the company got involved in dairy farming, a sector that has drawn strong interest among private equity firms.

In July, Alibaba Group Holding Ltd Chairman Jack Ma moved into the sector. Yunfeng Capital, a private equity firm co-founded by Ma and Target Media Holdings Inc Founder Yu Feng, together with CITIC Private Equity Funds Management Co Ltd, spent 2 billion yuan ($328 million) to acquire a 60 percent stake in a unit of dairy giant Inner Mongolia Yili Industrial Group Co Ltd.

According to Yili, the investment will help sustain milk supply sources, enhance farm-building capacity and upgrade the dairy source network to boost profitability.

The same month, Huaxia Dairy Farm Ltd, a high-end milk producer based in San-he, Hebei province, received investment from a group led by Government of Singapore Investment Corp Pte Ltd, Singapore's sovereign wealth fund, and Olympus Capital Holdings Asia, a leading regional middle-market private equity firm focused on Asia.

GICis investing $70 million, and Olympus Capital Asia is investing $30 million in the company.

The proceeds will be used to fund the expansion of Huaxia's farming operations as well as its retail dairy products business.

Existing shareholders, including Grand River Capital LLC, will invest $6 million.

Combined with its previous investments, Olympus Capital Asia has now invested $108 million in the company and is its largest shareholder.

Huaxia operates three farms in Sanhe, just outside of Beijing, with more than 13,500 cows.

The milk it produces is used to supply major dairy companies in China with premium products and for the production of Huaxia's own Wonder milk-branded products.

Last September, investment firm Kohlberg Kravis Roberts& Co LP, asset fund manager CDH Investments and China Modern Dairy Holdings Ltd established a joint venture to deliver premium milk to Chinese consumers.

KKR, CDH and Modern Dairy said they will invest $140 million over the next 18 months to build two large dairy farms, each with 10,000 cows.

Dairy farms have become a key link in the production process, fueled by growing domestic demand for high-end products.

Song Liang, an industry analyst, said agricultural investments have become more attractive to PE firms because of the economic slow-down.

The dairy sector, buoyed by surging milk prices, offers investors long-term profit opportunities, he said. And investment in the industry carries very little policy risk because the government encourages and supports dairy product safety.

Dairy farms are in short supply in China, with the raw milk shortfall standing at 3 million metric tons annually, of which more than 80 percent is imported from New Zealand.