American Dairy to Expand Production Capacity at Gannan and Longjiang Facilities

The enhancements at the Gannan Feihe and Longjiang Feihe facilities will expand American Dairy's infant formula production capacity from approximately 1,220 tons/day, as of today, to approximately 1,920 tons/day by August 2010, and to approximately 2,820 tons/day by May 2011.

10/06/09 American Dairy, Inc., one of the leading producers and distributors of premium infant formula, milk powder and soybean, rice and walnut products in China, announced that it has entered into an agreement (Agreement) with the GEA Group, Germany (GEA). Under the Agreement, GEA has agreed to provide the Company with infant formula production equipment, along with the related installations and training, at American Dairy's Gannan production facility, Flying Crane Dairy Products Co., Limited (Gannan Feihe). The Company expects the Agreement to increase production capacity at Gannan Feihe from 300 tons/day to 1,000 tons/day by August 2010.

Under the Agreement, American Dairy has agreed to make payments totaling approximately $24.6 million. The Company plans to fund the purchase partially from cash on hand and cash generated from operations, and partially from existing credit facilities available to the Company.

Mr. Leng You-Bin, the Company's Chief Executive Officer, stated, "We are glad to continue our partnership with GEA, and ultimately to enhance our Gannan production facility using new equipment in accordance with the current standards of the European Union. We believe the equipment from trusted manufacturers like GEA will better ensure that we continue our rigorous quality standards."

The Company also announced that it has completed the acquisition of a dairy processing plant located in Longjiang County, Heilongjiang Province, China, or "Longjiang Feihe." The total cash consideration of $4.4 million has been partially paid-for and subsidized by the Government of Longjiang County. Under the Agreement, GEA will assist in remodeling the Longjiang Feihe facilities and in the construction of a 900 tons/day production facility, estimated to be completed by May 2011.

The enhancements at the Gannan Feihe and Longjiang Feihe facilities will expand American Dairy's infant formula production capacity from approximately 1,220 tons/day, as of today, to approximately 1,920 tons/day by August 2010, and to approximately 2,820 tons/day by May 2011.