China's diary industry is to undergo a transformation which will promote large-scale operations, and favour integrated farming-and-sales business, one of the companies caught up in last year's melamine scandal has said.

China Mengniu Dairy, China's biggest liquid milk producer, said that recovery had come "in sight" for the country's dairy industry, after last year's furore over tainted milk which killed six babies and caused sickness in about 300,000 other children.

The group's own revenues were, at RMB12.1bn, 19% higher in the January-to-June half than in the previous six months.

"Concerted" efforts throughout the industry had fostered "signs of recovery", Mengniu said.

Scale factor 

The industry was now "going to focus on major areas of development", which included large-scale breeding operations, processing improvements and standardisation of industry practices.

The company said its own strategy included plans to work on breed improvement, cattle vaccinations and encourage farmers to "build up their scale".

Mengniu, rated by Rabobank as the world's 19th biggest dairy group, said it had stepped up construction of its own large dairy ranches.

Furthermore, it had enhanced milk-monitoring options to include testing for 105 factors, including pesticides, additives and heavy metals, to guard against a repeat of last year's scandal, in which milk was laced with melamine, a toxic industrial compound which can falsely raise results on tests for protein levels.

Advertising cut 

China Mengniu's interim revenues, while higher than in the previous half, were 11.7% lower than in the first six months of 2008, before the scandal broke.

However, a reduction in advertising budgets, which were raised last year to exploit the Beijing Olympic Games, helped earnings rise 5.0% to RMB722.4m.

Mengniu shares closed 3.8% higher at HK$19.50 in Hong Kong.

The results were Mengniu's first since it announced in July that Cofco, a state-owned foods company, and Hopu Investment Management, a private equity firm founded by Fang Fenglei, chairman of Goldman Sachs' China joint venture, had bought a 20% stake.