Chinese dairy companies are investing in new facilities in the midst of a steep market downturn according to an article last month in Chinese business news outlet Yicai. The article suggests that the companies are pursuing a new business model, but a deeper dive suggests that addition of new capacity in an industry already suffering from excess capacity is directed by industrial policy to upgrade the industry and protect it from imports.
According to Yicai, 2024 was the most difficult year in recent history for dairy companies in China, with weak product demand and fierce price wars. Official statistics say output of dairy products for January-October 2024 was down 2.3% year-on-year.
Despite the shrinking market and sinking prices Yicai observes that "many medium-size regional dairy companies have been quietly expanding production." The article lists examples.
- "Adopt-a-Cow" announced opening of a giant 20,000-head dairy farm in Gongzhuling (a small city in Jilin Province that has been a site chosen for splashy agribusiness projects since the 1990s) to supplement another 25,000-head farm.
- In November Weigang Dairy announced a new dairy product manufacturing facility in Rizhao, Shandong with a 300,000-ton capacity that will supply products in a 300-km radius in Shandong and Jiangsu Provinces.
- That same week Xinjiang Tianrun Diary announced the opening of the first phase of a 150,000-ton processing project in Dezhou, Shandong.
- In early November, Yantang Dairy announced plans to invest 610 million yuan in a 600-ton-per-day dairy plant in Jieyang, Guangdong Province.
Yicai explains that the expansions are being undertaken by small and medium regional dairy companies who hope to supply fresh milk products to local markets. In doing so, they aim to supplant giant companies that sell room-temperature products to a national market.
Yicai's explanation regurgitates a strategy of boosting fresh milk products repeated over and over for at least 10 years in China's dairy industry. The latest version asserts that the COVID-19 pandemic boosted new marketing channels that prompted Chinese consumers to shift their preferences toward fresh milk. New preferences for healthier and higher quality milk products are also part of the narrative.
 |
| Dairy section of a Chinese supermarket. Source: 36kr.com. |
Several months ago 21st Century Business Herald peddled this narrative in a long article, "With Excess Capacity and Intensified Competition, Dairy Companies are Turning to Low-Temperature Milk." The article explained that pasteurized fresh milk was predominant in the early days of China's dairy industry, but ultra-high temperature (UHT) milk took over the market in the 2000s due to the low cost of storing and transporting it at room temperature in a country that had few cold chain facilities. Now, the article claimed, consumers want fresh milk products again. The article cites statistics showing growth of fresh milk product sales despite this year's "vortex of falling volume and prices" and went on for pages claiming advantages of fresh milk and high-end products such as organic and skim milk and observed that nearly all Chinese dairy companies are introducing such products. The 21st Century Business Herald article hinted at a strategy of emerging competition in the industry as companies adjust their regional target markets similar to Yicai's explanation of new investments during an industry downturn.
A September 2024 article in State media, "Big Dairy Country: How to Accelerate the Transition to a Strong Dairy Country," went on for several pages trumpeting claims that China's dairy industry is now at the same level of those in developing countries before admitting that China has had a milk glut for two years as production outpaced consumption. Several pages later the article reveals why so many articles discuss fresh milk: the communist party's "No. 1 Document" for 2024 included a directive to promote consumption of fresh milk, adjust standards for liquid milk and standardize labels for reconstituted (UHT) milk. The article also cited a national nutrition and health committee issued a document recommending adding more soybeans and milk to Chinese diets and a special action plan issued by China's dairy association to stimulate milk consumption. (sounds familiar..."Got Milk" anyone?)
Earlier in 2024 an article in The Paper implied the directive in the No. 1 Document reflected growing demand for quality milk products, but an official quoted in that article explained that the real intent behind a directive to regulate labeling of reconstituted milk was to encourage use of domestic milk. He explained that the labeling regulation is meant to discourage companies' practice of mixing imported milk powder with domestic milk to increase protein content of their products. The official also admitted that the No. 1 Document's directive to promote fresh milk consumption was meant to sop up excess supplies of domestic milk.
The "Big Dairy Country" article cited a July announcement by China's Ministry of Agriculture and Rural Affairs that subsidies would be given for purchasing raw milk and milk powder made by spraying, for cost-saving dairy farming models, and orders were issued to local governments to offer more credit and insurance support to dairy farms to prevent them from culling their herds. The article gives examples of provincial subsidies to sustain large sophisticated dairy farms and companies through the downturn while eliminating less-productive farms and cows. Measures include 1.4 billion yuan (about $200 million) to help Inner Mongolia's dairy farms and 8,000 yuan per ton of milk powder sprayed; 2,000 yuan per cow for farms of 100 head or more in Xinjiang; and similar measures in Shandong, Heilongjiang and Hebei Provinces. Heilongjiang Province subsidized dairy companies 100 yuan for every ton of milk procured in the first half of 2024 plus a bonus subsidy for increasing their procurement volume from the previous year. Inner Mongolia has had such a subsidy since 2022.
The article interviewed experts and officials who suggested even more measures to re-engineer the dairy industry, increase production of cheese, whey powder, and cattle forage, boost consumption through dietary recommendations and student milk programs, and convince people to consume more pasteurized fresh milk and cheese.
 |
| Sichuan Province's dairy association met December 27 to set a guidance price for milk procurement of 4.44 yuan per kg in the first half of 2025. |
