KKR is leading a joint venture that plans to invest US$140 million in two large dairy farms on the mainland, a person with direct knowledge of the matter said, as the private equity firm returns to the fast-growing sector. It was linking up again with Modern Dairy and CDH Investments, a Chinese private equity firm, to build two 10,000-cow farms over a two-year period, the source said. KKR and CDH previously invested in Modern Dairy, selling out of their stakes in the company earlier this year to lock in a profit after a five-year holding. The new agreement reflects continued optimism over domestic demand for high-quality milk products and room for the industry to grow. The mainland's expanding middle class is driving sales of dairy products, expected to double to US$89 billion a year, according to market research firm Frost & Sullivan, with the country's dairy consumption still well below other large countries. The two farms will be located in Shanghe, Shandong province, the source said. New York-based KKR will hold 61.5 per cent of the venture, while CDH will own 20.5 per cent and Modern Dairy 18 per cent. The joint venture comes at a time when the central government, aware of the demand for high-quality milk, is trying to streamline the fragmented industry. A 2008 tainted-milk scandal crushed demand for domestic products and made officials aware that they needed to consolidate the industry and improve safety standards. Beijing's push to improve the industry has encouraged domestic dairy companies to seek acquisitions and stock offerings to support the fast-growing sector. KKR and CDH invested in Modern Dairy in 2008, and it listed on the Hong Kong stock exchange two years later. China Mengniu Dairy bought the KKR and CDH stakes earlier this year, allowing KKR to triple its original investment. With the new dairy-farm venture, KKR's exit from the Modern Dairy stake appears more to do with locking in a profit and exiting a deal before a new fund, rather than selling out of an industry it thought would slow. KKR just closed its US$6 billion Asia private-equity fund, the largest such fund ever raised.