Shengmu is the largest organic dairy company in China and the only vertically integrated organic dairy company in China that meets E.U. organic standards, according to the F&S Report. We had a 54.2% market share in China based on 2013 organic raw milk production volume, according to the F&S Report. Together with our associate, Shengmu Forage, our unique vertically integrated “grass-to-glass” organic (“全程有機”) production model covers the entire dairy industry value chain, meeting E.U. organic standards for all major stages of the dairy production process: forage growing, dairy farming to produce raw milk, and processing to produce high-end liquid milk products. According to the F&S Report, we are a major producer of organic liquid milk with a market share of 25.3% in terms of retail sales value of organic liquid milk in China in 2013. In addition, we are also among the top eight producers of premium non-organic raw milk (which refers to the raw milk that meets certain nutrition and safety standards) in China with a market share of 2.6% based on 2013 production volume, according to the F&S Report.

China’s organic raw milk market accounted for 0.5% of the overall raw milk market in China in terms of production volume in 2013, and is expected to grow at a CAGR of 53.5%, reaching 3.2% of China’s total raw milk production volume in 2018, according to the F&S Report. The total retail sales value of organic liquid milk in China was RMB1.9 billion in 2013, accounting for 1.3% of the total liquid milk market in China. In addition, China’s high-end liquid milk market accounted for 28.8% of the overall liquid milk product market in China in terms of retail sales value in 2013, according to the F&S Report.

Our business consists of the dairy farming business and the liquid milk business. We commenced our dairy farming operations in 2010 by engaging in the premium non-organic raw milk production in Hohhot, Inner Mongolia, and in 2011 expanded into the production of organic raw milk in Bayannur, Inner Mongolia. In 2012, we further expanded into the liquid milk business under which we produce and sell packaged organic liquid milk products under our “Shengmu 聖牧” brand. All of our liquid milk products are produced from organic raw milk produced internally by our organic dairy farms. We are the only dairy company in China that offers branded organic dairy products that are 100% processed from raw milk produced by self-owned certified organic dairy farms, according to the F&S Report. We expect that our future growth will primarily be driven by the growth of our organic dairy farming and liquid milk businesses.

We pioneered the unique fully integrated “grass-to-glass” organic production model to ensure that our production is end-to-end traceable and controllable from raw materials to end retail product by us and Shengmu Forage. We stringently control each major step of the organic production process under our “grass-to-glass” organic production model: (i) organic environment — no other agricultural or industrial activities on the sites of our organic dairy farms located on the Ulan Buh desert, the eighth largest desert in China; (ii) organic forage planting — effective control over the source and quality of our dairy cow feed by sourcing our forage substantially from Shengmu Forage, which primarily grows corn silage and alfalfa in the Ulan Buh desert without using any agricultural chemicals or chemical synthetic fertilizers; (iii) organic dairy farming — we are committed to raising our dairy cows in a low density, low stress environment with organic feed using no growth hormones; (iv) organic dairy product processing — all of the raw milk we use to produce our liquid milk products is supplied internally by our organic dairy farms, with no preservatives, artificial colorings and artificial flavorings added during the production process; (v) organic milk origin tracing — each unit of our organic milk products is given a code recognized by PRC Certification and Accreditation Administration (中國國家認證認可監督管理委員會) to trace the origin of production of each product as a quality control measure.