French food giant Groupe Danone has become the third-largest shareholder in a scandal-ridden Chinese dairy company after buying stakes from two state-owned companies. Industry sources see it as another step towards Danone eventually gaining a controlling stake. Danone, the world's biggest producer of diary products, now owns 20 per cent of Bright Dairy and Food Company (BDFC), its mainland flagship. It increased its share from 11.55 per cent by buying stakes from Shanghai Industrial Holdings and Gong Nong Shang, whose stakes will fall to 26.56 per cent each. Both are owned by the Shanghai city government. Danone beat off competition from China Mengniu Dairy and Shanghai Dairy Group, sources said. Wang Dingmian, general secretary of the China Dairy Association, said that Danone's ambition was to take a controlling stake in BDFC. 'In the past seven to eight years, consumption of milk in China has grown at an average of more than 10 per cent a year, against a global average of 2 per cent to 3 per cent. Only 300 million Chinese drink milk, which still leaves one billion who do not. That is the big attraction,' he said. Shanghai-based Bright Dairy ranks third in China's fresh-milk market but is falling behind Mengniu and Yi Li Industrial, both based in Inner Mongolia. On Monday, Mengniu announced a 43 per cent annual increase in 2005 net profit to 456.8 million yuan, with revenue up 50.1 per cent to 10.8 billion yuan. In contrast, Bright Dairy reported a 33.6 per cent drop in 2005 net profit to 211 million yuan on revenue of 6.904 billion yuan, up 1.74 per cent. Sales plunged after news reports in June that one of Bright Dairy's factories had recycled out-of-date milk. After the report, its share price on the Shanghai stock exchange fell for five consecutive days, losing more than 100 million yuan in market value. Market surveys found that thousands of consumers said they would no longer buy Bright Dairy products. It had to spend heavily on marketing and advertising to try to win back customers. The company has also done badly with acquisitions of dairies outside Shanghai - in Jiangxi, Tianjin and Jingyang - which have posted losses. It has also lost out to Mengniu and Yi Li, which have focused on UHT - or ultra high temperature - milk, the fastest growing category in the market. UHT milk can be transported and stored without refrigeration.