Dairy producer Yili Industrial Group has confirmed plans to invest $50 million in dairy firm China Huishan Dairy Holdings Co to secure its milk supply amid government urging industry consolidation.

China Huishan Dairy Holdings Co is reportedly looking to raise up to $1.3 billion through an IPO in Hong Kong.

In a filing with the Shanghai Stock Exchange on Monday, Yili said the investment was part of its management strategy and investment plan. It said the move would help strengthen its partnership with Liaoning Huishan and secure long-term and stable milk supplies in Northeast China.

Liaoning Huishan is a leading dairy in northeastern China and it operates 50 ranches, with a dairy cattle herd of 11 millon heads.

Song Liang, dairy analyst from Distribution Productivity Promotion Center, said Huishan can establish a stable supply relationship and enhance its product development and distribution network through the move. He urged the government to further encourage dairy companies in acquisitions and integration by issuing more favorable polices and funds.