Modern Dairy Water Management Targets and Practices

1. Water Stress Targets Comprehensiveness

As a leading domestic dairy farming enterprise and raw milk supplier, Modern Dairy’s core businesses include the raw milk business and the integrated dairy farming solutions business. The Company continuously monitors water usage across all operational stages and the water stress status in its operating locations. Water resource management is conducted synchronously in regions with varying water stress levels. Corresponding water-related management targets have been established to strengthen the systematic management of water efficiency through the continuous promotion of water-saving measures. The water resource management targets described below cover all of Modern Dairy’s consolidated subsidiaries, farms, and related operational segments.

1.1 Raw Milk Business

The Company has established water conservation targets covering all consolidated subsidiaries and farms within the Group’s raw milk business, as well as major water-consuming processes and key business units, including cow drinking, milking equipment cleaning, and spraying:

Starting from 2020, the Group aims to maintain the standard daily water consumption per cow within 110 kg for the next five years.
Using 2022 as the baseline, reduce the water intensity per unit of raw milk production and operation by 10% by 2030.

Target Progress:

In 2024, the Group’s daily water consumption per cow was 110 kg. From January to November 2025, the daily water consumption per cow was 108 kg.
As of November 2025, the water intensity per unit of raw milk production and operation has decreased by 19.4% compared to 2022.

1.2 Integrated Dairy Farming Solutions Business

Modern Dairy’s comprehensive farming solutions involve two major self-operated planting bases: the Hohhot Horinger Alfalfa Planting Base and the Bayannur Organic Corn Planting Base. Both are located in areas with extremely high water stress. The Company implements strict controls on farmland irrigation water usage for these self-operated planting bases.

Hohhot Horinger Alfalfa Planting Base (covering 3,285 mu) Water Resource Management Goal: Using the 2023 actual irrigation water usage of 360 cubic meters/mu·year as the baseline, the Company commits that by 2029, the average annual irrigation water usage at this base will not exceed 360 cubic meters/mu, achieving “zero growth” in water usage.
Bayannur Organic Corn Planting Base (covering 4,454 mu) Water Resource Management Goal: Using the 2024 actual irrigation water usage of 320 cubic meters/mu·year as the baseline, the Company commits that by 2029, the average annual irrigation water usage at this base will not exceed 300 cubic meters/mu, representing a decrease of 6% or more compared to 2024.

Target Progress:

Hohhot Horinger Alfalfa Planting Base: In 2024, the average annual irrigation water usage was 360 cubic meters/mu. From January to November 2025, the average irrigation water usage was 300 cubic meters/mu.
Bayannur Organic Corn Planting Base: In 2024, the average annual irrigation water usage was 260 cubic meters/mu. From January to November 2025, the average irrigation water usage was 240 cubic meters/mu.

2. Modern Dairy Water Consumption Overview

Modern Dairy continuously monitors water stress risk and changes at all operating locations. Based on regional characteristics, impact of water consumption, local regulatory requirements, water resources characteristics, and the actual conditions, the Company, referring to official documents such as 2023 China Water Resources Bulletin and the 2023 China Ecological Environment Status Bulletin, has applied the World Resources Institute (WRI) Aqueduct Water Risk Atlas tool to assess risks of water resources scarcity and water quality during the productive process, and drawn the water stress assessment map. The Company tracks water resource risks in the operating areas in a timely manner based on the water stress map and has developed targeted prevention and control measures to guide the planning and layout of the project.

2.1 Raw Milk Business

Region where the farms are located	Total Water Consumption in 2024 (tons)
Inner Mongolia Region	1,761,136
Bayan Nur Region	534,377
Organic Region	527,420
Northeast Region	1,923,729
Western Region	2,302,769
Eastern China Region	3,489,328
Northern China Region	1,958,034
Central China Region	2,315,974
Chasai Region	2,912,550
Total Water Consumption	17,725,317

In 2024, for Modern Dairy:

56.3% of water consumption came from high water risk stress areas.
The proportion of milk production in water-scarce areas was 61.6%.
The proportion of silage procurement in water-scarce areas was 65.3%.
Water-related capital expenditure: Modern Dairy has implemented a series of water-saving measures to reduce water consumption and improve water use efficiency. In 2024, the Company invested 2.63 million RMB to install precision sprinkler systems, which significantly improved irrigation accuracy, resulting in a 39% reduction in sprinkler water usage compared to the previous year.

2.2 Integrated Dairy Farming Solutions Business

In 2024, the Hohhot Horinger Alfalfa Planting Base and the Bayannur Organic Corn Planting Base consumed a total of approximately 1,663,986 cubic meters of water.

3. Water Reduction, Water Recycling, and Wastewater Quality Improvement Measures

The following measures for water reduction, water recycling, and wastewater quality improvement cover the Group and all its consolidated subsidiaries, including all business units involved in farming, planting, feed processing, and breeding. They also cover all of the Group’s subsidiaries and operating locations situated in high-water-risk regions.

3.1 Raw Milk Business

3.1.1 Water Reduction Measures

Precision Spraying: We have installed precision spraying equipment in cow barns to intelligently monitor environmental parameters such as temperature and humidity. Based on real-time data, the system automatically adjusts the operation of the thermal spraying system to reduce water waste. Since the implementation of precision spraying equipment, water conservation efficiency has been significant, achieving a 39% reduction in water usage and a 10% reduction in electricity consumption compared to pre-installation levels. Currently, all 18 farms of the Company are equipped with precision spraying systems.
Optimizing Pre-milking Udder Hygiene: In 2024, we introduced a detergent containing enzymes and plant extracts for cleaning the towels used to wipe udders. This innovative detergent requires only “one wash and one rinse,” unlike the previous “one wash and two rinses” method. It provides excellent cleaning performance and reduces foam generation while enhancing towel softness. Through this optimization measure, each farm with a capacity of 10,000 cows can save approximately 10 cubic meters of water per day, resulting in a total annual water saving of approximately 90,000 cubic meters for the Company.

3.1.2 Water Resource Recycling

Wastewater Reuse and Treatment: The Company recycles water used for cleaning milking machines in the milking parlor, using reclaimed water instead of fresh water to flush the holding area (waiting area) and manure transport pipes. In 2024, approximately 9.78 million cubic meters of wastewater were recycled. From January to November 2025, approximately 6.66 million cubic meters of wastewater were recycled. This wastewater, along with water from the precision spraying system and cow manure, is collected into fermentation tanks for treatment. After solid-liquid separation, the solids are used as bedding for cows, and the liquid is used as fertilizer.
Milk Pre-cooling and Full Water Recovery System: The Company adopts a process combining outdoor integrated air-cooled chillers with two-stage plate heat exchangers to cool raw milk. First, milk at 36°C is pre-cooled through the pre-cooling section of the plate heat exchanger. The temperature of the tap water rises after heat exchange with the milk, and it is then returned to the water cellar for recycling. The ratio of tap water to milk usage is 1.2:1, and all tap water used for pre-cooling is recovered for use as drinking water for the herd. In 2024, the Company produced 3.01 million tons of raw milk and used 3.612 million tons of pre-cooling water, all of which was recovered for herd drinking water. Subsequently, the pre-cooled milk enters the second stage of heat exchange, where ice water (below 2°C) produced by the chiller unit exchanges heat with the milk in the plate heat exchanger. The ice water warms up and returns to the chiller unit for re-cooling, operating in a closed-loop system for continuous recycling.
Rainwater Management: The Company strictly implements the separation of rainwater and sewage and promotes comprehensive utilization measures. The drainage system is rationally designed to separate rainwater from sewage, preventing pollutants carried by rainwater from entering the treatment system. Rainwater collection ditches are installed along roads in the farm areas, and rainwater collection pools are established within the premises. Part of the collected rainwater is used for irrigation of surrounding land, while the rest is discharged into surrounding surface water bodies through drainage channels. This effectively prevents sewage overflow caused by large amounts of rainwater entering sewage tanks during rainstorms. Additionally, rainwater mixed with manure enters the manure fermentation system and is returned to the fields as fertilizer after fermentation, achieving resource recycling while minimizing negative environmental impacts.

3.1.3 Wastewater Quality Improvement

The Company improves wastewater quality mainly through the following measures:

Physical Methods: Core Steps of Pre-treatment Physical methods are primarily responsible for removing suspended solids, grease, and large particulate impurities from wastewater. Typical processes include:

Screening: Using grids, screens, etc., to intercept and separate solid impurities.
Sedimentation: Utilizing gravity to allow suspended solids with a density greater than water to settle and separate.
Air Flotation: Such as dissolved air flotation and reflux pressurized air flotation, which use micro-bubbles to float and remove light suspended solids and grease.

Biological Methods: Degradation of Organic Pollutants Biological methods are suitable for wastewater with good biodegradability, degrading organic pollutants in water through the metabolic action of microorganisms. Typical processes include:

A/O Process: Primarily used for denitrification (nitrogen removal).
A²/O Process: Achieves both nitrogen and phosphorus removal.
Biofilm Method: Such as biofilters and rotating biological contactors, which treat water through attached microbial films.
MBR Process: Combines membrane separation technology with biochemical treatment, resulting in excellent effluent quality.

Treatment Results: Through the synergistic treatment of the above physical and biological methods, the Company treated a total of 326,000 cubic meters of wastewater in 2024. From January to November 2025, the Company treated a total of 252,000 cubic meters of wastewater.

3.1.4 Targeted Water Reduction Measures for High Water Stress Regions

As of December 31, 2024, 56.3% of our water consumption was sourced from areas with high water stress. Beyond company-wide measures such as precision spraying, optimized pre-milking udder hygiene, wastewater reuse and treatment, milk precooling and full water recovery systems, and rainwater management, we have implemented additional targeted water-saving optimization initiatives at farms in high water stress regions. These measures stem from the experience of the “Water Saving Co-creation Meeting” at Wenshang Farm (located in a high water stress region), which yielded significant water-saving results and are being replicated and promoted in other farms facing high water stress.

Soft Water System Backwash Recovery: Fully utilizing the wastewater generated by the backwashing characteristics of the water softener system, recovering it for flushing milking machine platforms or as spray water for the holding area, thereby avoiding waste from direct discharge.
Drinking Trough Level Optimization: Appropriately adjusting the water level of cow drinking troughs to ensure cows have access to fresh water while reducing drainage waste during the cleaning process.
Disinfection Room Low-Pressure Water-Saving Devices: Adopting low-pressure water-saving shower heads in disinfection rooms to reduce flushing water consumption while meeting hygiene and disinfection requirements.

3.2 Integrated Dairy Farming Solutions Business

3.2.1 Targeted Water Reduction Measures for High Water Stress Regions

Modern Dairy’s integrated dairy farming solutions involve two major self-operated planting bases: the Hohhot Horinger Alfalfa Planting Base and the Bayannur Organic Corn Planting Base, both located in extremely high water stress regions. To address water risks, the Company has implemented intelligent irrigation specialized water-saving technology across both planting bases as a core strategy for regions with extremely high water stress.

Intelligent Irrigation Technology Applied to Forage Production: Our fields utilize an intelligent water valve system. Through automatic pressure stabilization devices and automatic backwashing devices, the system achieves stable output of irrigation pressure and improves irrigation efficiency. Relying on the intelligent water-saving mode, the system realizes low-pressure, small-flow irrigation with large-flow drippers, effectively reducing the water quality requirements at the headworks and improving anti-clogging performance. The area of a single rotation irrigation group is increased by approximately 1/3 to 2/3 compared to traditional ball valves, effectively reducing the number of rotation groups and shortening the rotation cycle. The system can complete the switch between rotation groups within 2 seconds, automatically achieving pressure balance to ensure consistent pressure at both near and far ends. This realizes a “small amount, high frequency” moistening irrigation mode and precise control of water and fertilizer supply, creating a crop growth environment where the soil is moist, warm, aerated, and fertilizer is concentrated at the roots. This intelligent setup can timely detect and report faults, avoiding unnecessary waste of water and fertilizer caused by prolonged damage to the drip irrigation system. Compared with traditional irrigation methods, water and electricity savings per mu can reach 25%-30%, and fertilizer savings can reach 10%-15%, significantly improving the utilization rates of water, electricity, and fertilizer. Meanwhile, through precise control of soil moisture content, uniform water and fertilizer distribution is achieved, which can increase soil temperature at the seedling stage by 1-2℃, effectively improving the uniformity and rate of seedling emergence and reducing the phenomenon of uneven seedling growth.

4. Value Chain Water Risk Assessment

The Company attaches great importance to water-related risks in the supply chain and has established a systematic risk assessment and management mechanism to ensure the stability of key raw material supplies. Our management focuses on silage corn, a core raw material accounting for 46% of total feed, as well as the internal supply chain.

4.1 Supplier Water Risk Assessment and Identification

Assessment Methodology: The Company uses the World Resources Institute (WRI) Aqueduct Water Risk Atlas tool to conduct annual assessments of the water stress levels in the locations of all silage corn suppliers.
Risk Exposure Quantification: In 2025, the Company purchased a total of 2.686 million tons of silage corn. The assessment shows that 66.2% of this procurement volume came from suppliers located in “High” or “Extremely High” water stress regions. Water scarcity in these areas may pose potential risks to crop yields and supply stability.

4.2 Management and Cooperation with Suppliers in High-Risk Regions

For identified suppliers in high-risk regions, while conducting risk identification, the Company continues to implement a series of cooperation and empowerment measures to continuously improve the overall water resource resilience of the supply chain:

Promoting Water-Saving Irrigation Technology: We actively promote and provide technical guidance to cooperative growers, encouraging them to adopt efficient water-saving technologies such as small-flow drip irrigation to achieve precise “small amount, high frequency” irrigation, thereby significantly improving water use efficiency.
Providing Site-Specific Planting Advice: Combining climate data (including historical rainfall patterns) of the supplier’s location, the Company recommends and guides the planting of corn varieties that are more drought-resistant and better adapted to local water resource conditions.
Establishing Procurement Assessment Mechanisms: When evaluating existing suppliers and selecting new ones, the Company prioritizes suppliers with superior performance and higher comprehensive scores in environmental management (including water resource management) and labor management.

4.3 Water Resource Management in the Internal Supply Chain

As a supplement to supply chain risk management, the Company implements stricter direct water resource management for its self-operated planting bases.

Coverage: The Company’s Hohhot Horinger Alfalfa Planting Base and Bayannur Organic Corn Planting Base are both located in regions assessed as having extremely high water stress.
Specialized Water Reduction Measures: As detailed in “3.2.1 Water Reduction Measures for High Water Stress Regions,” these bases have fully deployed intelligent irrigation systems. By adopting small-flow drip irrigation and sprinkler facilities equipped with pressure equalization systems, we have achieved precise supply of water and fertilizer and uniform irrigation coverage. Water savings per mu can reach 25%-30%, ensuring water responsibility and efficiency in the internal supply chain from the source.