Swiss food giant Nestle has officially inaugurated a dairy farming institute in China, located in the northeastern province of Heilongjiang, as part of its commitment to expand in the country even as China has a current oversupply of dairy products.

The institute features several classrooms that will be used to discuss the latest techniques and technologies in dairy farming as well as three dairy farms. It took two years to complete the construction of the said institute.

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Nestle has also built three milk supply bases in compliance with the Chinese government's stringent regulation governing the dairy industry. The policy requires formula manufacturers to have their own facilities in order to control milk supply.

Nestle has milk supply bases in Shuangcheng in Heilongjiang, Laixi in Qingdao and Hulunbeier in Inner Mongolia.

The company buys about 600,000 metric tons of fresh milk per year, which is sufficient to meet more than two-thirds of its demand for raw milk.

The Swiss company also inked a memorandum of understanding (MoU) with the local government in Heilongjiang to spend about Rmb2.5bn (USD408m) to build a fresh milk supply base in the province.

Nestle Greater China Chairman and CEO Zhang Guohua said the fresh milk supply base in Heilongjiang will facilitate large scale cattle ranching and help modernize Chinese dairy farming practices

Analysts said Nestle's expansion in China comes at a time that the country has an oversupply of milk, unlike in 2013 when the country faced a serious shortage of dairy products.

The shortage in the second half of last year, however, was remedied immediately when prices of dairy products imported from New Zealand dropped, prompting domestic firms to import more raw milk powder.

The import frenzy, however, caused oversupply as of February 2014. One domestic dairy giant reported accumulating a surplus of 2,000 tons of milk supply per day.

But sources said Nestle is looking at the long term when it decided to inaugurate its dairy farming institute.

TagsNestle China, Nestle China investment, China Dairy Industry