This project will enable the company to source milk from its own farms - currently, it sources 82% of the milk from large-scale farms, of which some of them are partly company-owned, while others have exclusive supply contracts.
Mengniu Dairy executive director Bai Ying said that establishing own dairy farms will ensure the quality of its milk supply is not compromised.
In addition, the company is also planning to phase-out supply from small farmers, who currently supply one-fifth of the company's milk, and then shift to large-scale farms.
Mengniu public relations official Chris Kwok told Reuters that shifting to large-scale farms offers advantages such as improvement in the quality of cattle, control and feeding.
In order to ensure safety, the company noted that it has assigned more staff to check the quality at small dairies and invested CNY30m ($4.73m) to procure quality assurance systems.
After the milk scandal in 2008, in which several dairy companies were implicated for using melamine in milk and infant formula, the Chinese government had passed a regulation in 2009, under which dairy companies should control at least 70% of the raw milk they process.
In response, several dairy companies in China have been seeking to establish their own dairy farms - Bright Dairy Food is planning to build a CNY130m ($20.53m) farm in Hubei province.
Inner Mongolia Yili Industrial has opened a CNY220m ($34.74m) farm last month, while Nestlé China has set up a dairy farming institute featuring three training farms at Shuangcheng earier this month.
Dairy firms having large farms are also supported by the government - a farm that raises more than 1,000 cows annual will be offered CNY1.5m ($0.23m) as a subsidy.
