Malaysia’s dairy king milks funding to grow herd
Despite humble beginnings, a Southeast Asian milk producer has dispelled the myth that Malaysia cannot sustain its own dairy industry, and is in the process of expanding into Australia following a round of private equity investment.
The Holstein Milk Company (THMC), which is based in the state of Johor, was founded in 2007 after managing director Loi Tuan Ee decided to move from the packaging industry into dairy.
Having noticed that Malaysian dairy brands had hitherto been selling reconstituted and powdered milk instead of fresh milk, he decided to launch the new business with just 60 Holstein jersey cows imported from Australia that were reared on a small plot.
It now has more than 5,000 cows in both Malaysia and Australia, where the company has also invested MYR85m (US$20.5m) to acquire a dairy farm and a plant, which will also serve as a breeding ground.
Singapore investment
THMC, whose Farm Fresh brand Loi says serves 40% of the Malaysian milk market, has also been the subject of funding from Singapore firm Daymon Asia Private Equity, though details of the transaction have not been disclosed.
Tan Chow Yin, a partner at Dymon said, “Farm Fresh is a brand that Malaysians and increasingly Singaporeans too have grown to know and love over the years, and is a market leader in fresh dairy milk in Malaysia.
“We have watched the brand grow from a few SKUs to more than 50 today,” Tan said, adding that Daymon also hopes to assist THMC grow beyond Malaysia. Apart from managing dairy farms in Australia and Malaysia, THMC also produces fresh and flavored milk, yogurt and even goat’s milk.
“Daymon have been looking at taking a stake in us since almost a year and a half ago. They wanted to invest in the FMCG category,” Loi told DairyReporter.
“The Farm Fresh brand met the investment criteria, which prompted them to look at us.”
He said that one of THMC’s strengths is in how it is a fully integrated dairy company, in the sense that it is not only involved in dairy farming, but it is also in animal genetics through a business in Australia. It is also a processing company and distributes its products itself.
Overcoming climate
What is interesting about THMC and its Farm Fresh brand is that the company has managed to develop an industry where there had been little there before it. It has often been said that the Malaysian climate is too hot and humid for dairy to thrive.
Since the early 70s, the government has made efforts to reduce Malaysia’s dependence on imported dairy products. Dairy colonies were set up in Selangor and Negeri Sembilan, and large-scale dairy farms were established in Johor, Kelantan, Terengganu, Sabah and Sarawak during the First, Second and Third Malaysia Plans, which set five-year strategic directions for the economy.
The purpose of these farms and colonies was to increase local milk production. At the time, Malaysia did not have any registered local pure-bred dairy cattle with the desired characteristics, such as the ability to produce high milk yields and be adaptable to local humid conditions. So cattle crossbreeding programs were adopted at these farms, and temperate breeds were introduced to develop the dairy sector, though these experienced low milk yields.
Even until 2012, despite this central dairy planning, Malaysia’s self-sufficiency level for milk only ran at about 5%, with the herd producing less than 80m liters a year. At the same time, Loi began to make moves to change this.
“Six years ago we managed to buy a genetic company in Australia that had been developed by the Queensland government in the Sixties and early Seventies,” he said.
That biotech firm had managed to develop a breed that thrived in the tropics by crossing the Friesian with a sahiwal breed from India. Through that purchase, THMC owns the genetic patent for the crossbreed, which is much more suitable for Malaysian conditions than any fully temperate animal.
“In a sense we are a bit different from other dairy farming companies as we own our breed, which has this advantage,” Loi added.
Australian relationship
This ongoing relationship with Australia has led to commitments worth more than MYR100m, including the recent 607-hectare farm purchase in Victoria. It also plans to establish a sperm bank there for breeding cattle through artificial insemination.
“When works are completed early next year, the plant will be able to produce 27,000 liters of milk daily, which will then be brought into [Malaysia] to be re-processed at the Muadzam Shah Cattle Research and Innovation Centre,” said THMC operations director Azmi Zainal.
With three Malaysian plants now operational, and a fourth on the anvil, THMC is looking to grow to accommodate the increasing number of heifers being bred in Australia to supply the company’s Malaysian farms.
However, finding land in the tropical and largely mountainous country, where oil palm is the preferred agricultural commodity, is a challenge.
Palm oil
With international palm oil prices in the doldrums, having dropped by more than RM500 (US$120) in the last year, there has been talk among agriculturalists about repurposing some of these vast plantations that cover much of peninsula Malaysia and the country’s two states in Borneo.
This would not benefit the dairy industry, however, said Loi, as dairy animals are more delicate than meat cows that could thrive on the lower quality grasses of former oil palm land, though alternative lands are available.
“Land is not cheap in Malaysia because of all the oil palm here,” he added.
“Having said that, there is a lot of redundant land across the country that is not being put to good use.
“We are making an effort to look out for land like this to convert to dairy farming. We are on the lookout for a plot of land for our fifth farm, which will be not too far away.”
By proving that Malaysia is able to produce dairy at a sustainable level, and operating through a fully integrated model that includes genetic husbandry, the jovial Perakian believes his company has inspired others to go into dairy, though he cautions that investors need to be patient before they should expect any real returns.
“It’s not about just having the money. There is a lot of effort with dairy animals to make sure they are well looked after—I myself spend 60% of my time on the farm,” he said.
Moreover, the importance of having a cows that can cope with the conditions cannot be understated—and that is according to the man who owns the patent and supply chain for such an elusive breed.
