Organic industry chain

There is a place amidst China’s vast land: it is adjacent to the Yellow River, south of the Yin Mountains and features long stretches of desert interwoven with lakes. Its ample sunshine, dry climate and abundant water sources provide a unique habitat for cattle herds. This favorable environment in Ulan Buh desert nurtures China’s largest organic dairy company- China Shengmu Organic Milk Limited.

The Ulan Buh desert, where both Shengmu Forage’s growing fields and our organic dairy farms are located, offers a number of benefits compared to conventional farming environments in China. These benefits include cool and dry weather preferred by dairy cows, limited human activity and little pollution as well as very low levels of bacteria, viruses and pests. In addition, according to F&S Report, there is abundant water resources and rich soil underneath the sandy surface.

Clean environment. As of the Latest Practicable Date, we are not aware of any chemical or industrial plants within the close vicinity of our organic dairy farms that could lead to the suspension or revocation of our organic certifications. The absence of industrial activities coupled with the desert weather conditions means that there is little pollution and very low levels of bacteria, viruses and pests. The desert sand also provides comfortable lying ground for our cows to rest and reduce their chances of developing mastitis.

Sand and sunlight. The soft and breathable desert sand provides comfortable lying ground for our cows to rest and reduce their chances of developing limping disease. According to the F&S Report, the Ulan Buh desert has an average of almost 3,200 hours of sunlight annually with an average solar radiation intensity of 6,280 MJ/square meter, compared to an average 1,800 to 2,000 hours of sunlight annually with an average solar radiation intensity of 4,250 to 5,000 MJ/square meter in central and southern China. The intensity and the long hours of sunlight in the desert help forage crops grow and our cows produce higher levels of calcium in their milk, according to the F&S Report.

Preferred climate. Cows prefer relatively cool temperature and dry weather. The Ulan Buh desert is located within the latitude zone generally considered ideal for dairy farming and known as the Golden Raw Milk Belt. According to the F&S report, the temperature range from 0°C to 15°C is a favorable range for dairy cows and the Ulan Buh desert has an annual average temperature of 7.8°C, and an annual average precipitation of approximately 103 millimeters. Compared to some cold and humid regions in China, the climatic environment in Ulan Buh desert is more suitable for dairy farming. In addition, the temperature difference between day and night in the desert helps to improve the quality of forage crops.

Rich soil and abundance of water. Unlike other large deserts in China, the Ulan Buh desert is the product of alluviation of the upper reaches of the Yellow River, the second longest river in Asia, which has formed a thick layer of rich soil under the sand surface of the desert conductive to plantation. The lateral seepage of the upper reaches of the Yellow River also provides abundant shallow underground water. According to the survey conducted by Inner Mongolia Hetao Irrigation Administration, the Ulan Buh desert area has an aquifer holding an aggregate of approximately 5.7 billion cubic meters of water under the sand surface. The water of the upper reaches of the Yellow River is very clean and is purified as it percolates through layers of rock, fine sand and gravel to form the desert lakes and aquifers.

The number one dam on the Yellow River – the Sanshenggong Water

The Sanshenggong Water Conservancy Project divides the upper reaches of the Yellow River from the middle reaches of the river. It has been known as “the number one dam on the great Yellow River”.

Irrigating an area of 8.7 million mu, it is the largest single-head water diversion irrigation district on a plain in Asia. It plays an important role in agricultural irrigation and improving the ecological environment of the Ulan Buh.

An organic water source of Shengmu – Dongqing Lake

Dongqing Lake is in the Ulan Buh Desert. It is 40 kilometres from the Yellow River, whose water level is 40 metres above that of the lake. It is naturally formed in the desert from the water of the Yellow River which permeates underground.

With an area of 5000 mu, the lake is divided into an eastern part and a western part. Its depth is 3 metres. It holds 40 million cubic metres of water, and can irrigate an area of 150000 mu.

Dongqing Lake serves Shengmu's industrial base. It keeps Shengmu's prataculture and animal husbandry well-supplied with water.

Currently we source our organic forages substantially from Shengmu Forage, which grows, among others, corn and alfalfa in the Ulan Buh desert without using any agricultural chemicals or chemical synthetic fertilizers. Shengmu Forage currently grows organic forages on parcels of land with a total area of approximately 220,000 mu (146.67 square kilometers) in the Ulan Buh desert; by 2020, Shengmu Forage expects to develop a total of approximately 340,000 mu (226.67 square kilometers) of growing fields for organic forages.

Organic feed

Shengmu Forage had developed approximately 220,000 mu of growing fields in the Ulan Buh desert to grow forage crops for our dairy cows. Because of the favorable ecological conditions, climatic advantages and unique desert characteristics of the Ulan Buh desert (see “— Organic Environment” above), Shengmu Forage has grown the forages without using any synthetic pesticides. To protect the organic environment and maintain and enhance the soil conditions in the Ulan Buh desert, Shengmu Forage does not use chemical synthetic fertilizers but organic fertilizers produced from the cow dung generated on our organic dairy farms.

We are committed to cattle welfare as part of the culture of organic dairy farming, which we believe also contributes to our product quality. We raise our organic dairy cows in a low density environment with organic feed using no growth hormones.

Organic farms

The Group has established 13 organic dairy farms and the Group is now constructing 6 additional organic dairy farms in the Ulan Buh desert and its hinterland. The Group also had over 40000 organic dairy cows. Our organic dairy cows have an average living space of 60 to 80 square meters per cow. All of our farms are free stall farms with easy access to food and water, clean and comfortable dry sand bedding and spacious sport fields that allow our dairy cows to eat, drink and relax freely. A majority of our dairy farms have a capacity to house between 2,500 to 4,500 dairy cows. We believe that the size of our farms enables us to enjoy economies of scale without over-burdening the environment.