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Yili looks to Italy for better milk

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Chinese dairy company Inner Mongolia Yili Industrial Group Co has formed a "strategic partnership" with Italian peer Sterilgarda Alimenti, allowing Yili to upgrade its technology and improve the quality of its liquid milk.

Yili announced the agreement in a filing to the Shanghai Stock Exchange. It didn't give further details.

Song Liang, a dairy industry analyst, said that collaboration with top global dairy producers will boost Yili's product quality and technology levels, as well as expanding its dairy resources.

The Italian company is a specialist in filter membrane technology, which can remove harmful bacteria and impurities and keep milk fresh for four to eight months without preservatives.

The technology also allows low-temperature sterilization, which maintains the nutritional value of the milk.

Song said Yili and Sterilgarda Alimenti are likely to establish a joint venture and create their own brand of liquid milk. Having that brand would allow the venture to tap into the high-end market and raise the profit margin for liquid milk, which accounts for a large share of the dairy products consumed in China.

During the first three quarters of 2013, Yili generated operating revenue of 36.5 billion yuan ($5.9 billion) and net profit of 2.52 billion yuan, up 82.7 percent.

Song said that the financial results demonstrate Yili's resilience amid a tough environment this year for dairy companies, which have faced milk shortages that limited their output and raised production costs.