2012 was
an important turning point for the development of China’s dairy industry. There
was pacing up of transition from coarse quantitative growth to intensive
qualitative efficient growth and from super-conventional unregulated
development to steady orderly progress. There were both challenges and
opportunities for China’s dairy industry.
From the
perspective of challenges, 2012 saw constant upsurge of CPI and overall price
hike. The price for dairy cattle feed and fodder, fuel cost and labor cost,
which are related to dairy cattle farming, rose comprehensively, so the
production cost of raw milk kept on moving up. Although the procurement price
for raw milk rose at the same time, yet the growth of cost and expenditure was
faster. More and more smallholder farmers were forced to give up dairy farming.
During the year, the input-output efficiency of scaled farming was much better
than smallholder farming and scaled farming saw accelerated improvement of
proportion in raw milk production. From the perspective of quality vs price,
China is one of the countries that have the highest raw milk price. The too
high raw milk price does not only weaken the competitiveness of China’s dairy
industry in the world, but also makes it hard for China to export dairy
products and there is a huge cost pressure to the domestic dairy processing
enterprises.
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Dairy
companies have to readjust their product structure, raise the proportion of
high value-added products, sustain and improve the gross profit margin.
Meanwhile the too high raw milk price forces processing companies to restructure
their products and produce more “functional products” and “colorful products”
of higher price. However the too high prices for dairy products restrain
consumption and the per capita dairy consumption quantity of the Chinese
residents lingers around the same level. In 2012 the price for raw milk and
milk-based raw materials kept at a high level, products from the international
market were more competitive than the domestic made in quality vs price.
Meanwhile there were frequent incidences concerning dairy product quality and
safety, especially involving famous brands, which hurt consumers’ confidence on
dairy products. In order to raise competitiveness, domestic companies paced up
acquisitions and mergers overseas, shifted dairy farming and processing to foreign
countries and tried to gain consumers’ confidence by introducing 100% imported
products. At the same time there was continual significant growth of dairy
import to China, especially full-cream milk powder and skim powder, breaking
another historical record. In 2012 the import of raw material milk powder was
close to 600,000 tons, up 30% year on year. The huge import brought a serious
impact on milk powder processing and even on the whole dairy processing
industry in China.
From the
perspective of opportunities, the Chinese Government enhanced support and
regulation of the industry in 2012. For dairy farming, scaled farming continued
to gain Government support and preferential policy treatment and the profit of
scaled farming was guaranteed. Meanwhile processing companies injected more
investment for dairy farming and raised the proportion of controllable milk
source. For dairy processing, the order of the processing market was gradually
purified, the competition of the dairy market became more regulated and
orderly, the proportion of marketing cost in the total cost kept on dropping
and the profit margin of the dairy processing industry improved, which eased
the pressure from the hike of production cost to a certain extent. For
international environment, the global dairy consumption was affected by the
outbreak of the European debt crisis and slow rally of the global economy
especially the developed economic entities. The economic entities, which
suffered from the crisis, witnessed negative impact on dairy consumption. On
the other hand, the main economic entities in the world still saw stability or
certain growth of production of milk and processed dairy products and hence
they relied more on export. Except for whey and lactose, the price for other
dairy products fell year on year and the dairy industry waits to be
consolidated. The hardship of the dairy-developed economies is an opportunity
for China’s dairy industry, especially the implementation of the “going out”
strategy lays an opportunity.
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Looking
into 2013, China’s dairy industry is foreseen to witness significant changes
concerning both the domestic and international market environment. After the
readjustment in 2012, the global economy especially Europe and America shall
recover and there shall be improvement of consumption demand. The continuation
of Greece in the Euro Zone is a cardiac stimulant to the European economy and
the US Democrats and Republicans are hopefully to reach a compromise on the
“fiscal cliff”. These shall stabilize the Western economy. At the same times,
QE currency policy shall be exercised in more and more countries, which surely
will spur price hike of global fundamental products including produce and oil once
again. The price for raw milk and processed dairy products is projected to
surge again in the main economies. Although the huge supply would restrain
excessive price hike to a certain extent, yet China shall see rising cost of
dairy import. In China in 2012, the Ministry of Agriculture and the Ministry of
Finance jointly promulgated the “Prospering Dairy Farming Alfalfa Development
Action”. Alfalfa growing shall be going on extensively in the main dairy
farming regions in 2013. The policy is conducive to optimization of dairy
cattle feed structure, reduction of feed and other farming cost, improvement of
raw milk quality and yield and upgrading of dairy farming.
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This
report illustrates in a panorama way the situation of China’s dairy industry in
2012 including production of raw milk and processed products, dairy
consumption, dairy trade, price trend of raw milk and processed products,
operational status of the dairy industry, the competition of the dairy market,
the revenue of key dairy companies and investment. The report also covers the
trend of the world dairy market; production, consumption and trade of the key
dairy producing and trade countries; the impact from the world dairy market to
China’s dairy industry and forecast on the trend of China’s dairy industry in
2013.
This
report is the result of collaborative collective work of BOABC Dairy Research
Team. The senior analysts of BOABC Dairy Research Team are members of the
“think tank” of relevant government authorities and associations, who have
sound relationship with the authorities and associations and keep good
relations with key dairy companies, related sectors and enterprises as well.
This advantage is solid valuable professional support to the composition of
this report and guarantees the accuracy, authoritativeness, scientific
justifiableness and forward looking of the data quoted in the report. BOABC
believes this report is important reference for both domestic and foreign
investment agencies, dairy companies, suppliers of ingredients for dairy products
and equipment suppliers in making strategic decisions, and it is also important
reference for industrial associations and research institutes.
