Dairy market in china (Prabhat Pandey-Progressive Media Group)

Dairy Market in China

Prabhat Pandey

Table of Contents1. Introduction……………………………………………………………………………………………………………

…………………………………………………………....3

2. Market size……………………………………………………………………………………………………………………………………………………………………………4

3. Market Segmentation: Product Types……………………………………………………………………………………………………………………………………5

4. Market Segmentation: Milk Types…………………………………………………………………………………………………………………………………………6

5. Key Challenges………………………………………………………………………………………………………………………………………………………………………7

6. Market growth drivers…………………………………………………………………………………………………………………………………………………………..8

7. Future outlook………………………………………………………………………………………………………………………………………………………………………9

8. References…………………………………………………………………………………………………………………………………………………………………………..10

IntroductionPurpose

The purpose of this report is to provide strategic insights on Dairy market in China through analyzing the market size, and market segmentation. Additionally, the report identifies the challenges, and growth drives of the market and provides recommendation on the future outlook of the market.

Background

Dairy products have a long history in China. Before 1978, the dairy market in China witnessed slow development. However, the market showcased strong growth post release of the opening market policy from 1977 to 1996. During the same period, the national GDP per capital increased 12.5% annually supported by 11.2% increase in the compound annual growth rate (CAGR) of raw milk production. Dairy industry in China recorded the fastest growth during 1997-2007 period. During the same period, the market was large-scaled, standardized, and intensive. During 2008-2012 period, the market has kept stable growth. During the same period, the consumption confidence on domestic dairy products was damaged badly consequent to the milk quality issue of Melamine occurred in 2008. However, the dairy products import grew rapidly, while the import growth rate in 2009 and 2010 was 117% and 27% respectively.

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Market sizeMarket size by volume

• China was the world’s third largest country by volume accounting for 5.90% of the global milk production, which was recorded at 620.66 million metric tonnes in 2012.

• Ten largest provinces by volume accounted for 72.25% of the cumulative milk production in 2012.

• Inner Mongolia was the largest province by volume in 2012 accounting for 12.80% of the total milk production in China.

• Inner Mongolia was followed by Shandong (12.60%), Hebei (10.71%), Heilongjiang (7.30%), Henan (6.89%), Shanx (6.76%), Jiangsu (5.04%), Liaoning (4.17%), Sichuan (3.03%), and Anhui (2.96%).

Market size by output

• Dairy industry output in China was recorded at US$41.19 billion in 2012.

•Milk was the largest segment by output accounting for 65.40% of the total dairy industry output in China.

• International players accounted for over 60% of the market share by output, while the domestic players account for 40% of the market share.

• Inner Mongolia Yili Industrial Group Co., Ltd. (Yili) was the largest domestic player by output with holding 45% market share among the domestic players in China.• Yili was followed by China Mengniu Dairy Co., Ltd., (30%), Shanghai Bright Dairy & Food Co., Ltd.

(5%), and others (20%).

•Major foreign dairy companies in China included Schein, Friso, Nestle, Yashili, BiosTime, Abbott Laboratories, MeadJohnson, Wyeth (Nestle), and Beingmate.

14.3%

9.3%

5.9%

5.3%

5.1%

4.9%

4.0%3.1%2.3%

2.2%

43.6%

Market Size by Major Countries (2012)America

IndiaChinaBrazilRussiaGermanyFranceNew ZealandUKTurkeyothers

Global milk produc-tion 620.66 million metric tonnes

12.6%

10.7%

7.3%

6.9%

6.8%

5.0%4.2%3.0%3.0%

2.2%

38.3%

Market Size by Provinces in China (2012) Inner Mongo-

liaShandongHebeiHeilongjiangHenanShanxiJiangsuLianingSichuanAnhuiothers

Milk production in China 36.62 million metric tonnes

Source: Dairy Association of China



Market segmentation: Product Categories• Dairy industry in China is classified into six segments: Milk, Yogurt, Cheese, Butter and Spreadable Fats, Cream, and Puddings/Deserts.

• Milk was the largest segment by output in China, followed by Yogurt, Cheese, Butter and Spreadable Fats, Cream, and Pudding/Deserts.

•Milk output was recorded at US$26.90 billion in 2012 as against US$18.67 billion in 2008, growing at a five-year compound annual growth rate (CAGR) of 9.57% during 2007-2012.• The segment output is expected to grow at an annual growth rate of 9.57% during 2013-2017

period to reach US$42.48 billion by 2017.

• Yogurt segment was valued at US$7.53 billion in 2012 as compared with US$5.08 billion in 2008, growing at a CAGR of 10.34% during 2007-2012.• The segment output is expected to enhance further at an annual growth rate of 10.34% during

2013-2017 period to reach US$12.32 billion by 2017.

• Cheese output increased to US$3.22 billion in 2012 from US$1.85 billion in 2008, growing at a CAGR of 14.86% during 2007-2012.• The segment output is expected to boost further at an annual growth rate of 14.86% during


• Butter and Spread Fats output was recorded at US$1.9 billion in 2012 as against US$1.27 billion in 2008, growing at a CAGR of 10.60% during 2007-2012.• The segment output is expected to grow at an annual growth rate of 10.60% during 2013-

2017 period to reach US$3.14 billion by 2017.

• Cream and Spread Fats segment was valued at US$1.41 billion in 2012 as compared with US$0.87 billion in 2008, growing at a CAGR of 12.83% during 2007-2012.• The segment output is expected to enhance further at an annual growth rate of 12.83% during


• Puddings/Desserts and Spread Fats output increased to US$0.24 billion in 2012 from US$0.16 billion in 2008.• The segment is expected to boost further at an annual growth rate of 10.67% during 2013-

2017 period to reach US$0.40 billion by 2017.

4.6%

7.8%

3.3%

65.4%

0.6% 18.3%

Dairy Output by Segment (2012)

Butter and Spreadable Fats

Cheese

Cream

Milk

Puddings/Desserts

Yogurt

Dairy Industry Out-put US$41.19 billion

2013 2014 2015 2016 20170.00

10.0020.0030.0040.0050.0060.0070.00

Forecasted Dairy Output by Segment (2013-2017)

Milk Yogurt Cheese Butter and Spreadable FatsCream Puddings/Desserts




Market segmentation: Milk Type• Fluid milk production was recorded at 32.6 million metric tonnes in 2012 as compared with 34.3 million metric tonnes in 2008, growing at a CAGR of -1.26%.

• The segment volume is expected to grow at a negative annual growth rate of -1.26% during 2013-2017 period to reach 30.6 million metric tonnes by 2017.

• Skimmed milk powder production increased to 57,000 metric tonnes in 2012 as against 53,000 metric tonnes in 2008, growing at a CAGR of 1.84%.

• The segment volume is expected to grow at an annual growth rate of 1.84% during 2013-2017 period to reach 62,000 metric tonnes by 2017.

•Whole milk powder production was recorded at 1.16 million metric tonnes in 2012 as compared with 1.12 million metric tonnes in 2008, growing at a CAGR of 0.88%.

• The segment volume is expected to grow at an annual growth rate of 0.88% during 2013-2017 period to reach 1.21 million metric tonnes by 2017.

2008 2009 2010 2011 20120

10000

20000

30000

40000 34,300

28,445 29,300 30,700 32,600

Y-oY Fluid Milk Pro-duction

Volu

me in m

illio

n

metr

ic t

onnes

2008 2009 2010 2011 20120.05

0.052

0.054

0.056

0.058

0.0530.054

0.0550.056

0.057

Y-o-Y Skimmed Milk Powder Production

Volu

me in m

illion

metr

ic t

onnes

2008 2009 2010 2011 2012900950

10001050110011501200

1,120

9971,030

1,100

1,160

Y-oY Whole Milk Powder Production

Volu

me in m

illion

metr

ic t

onnes

Source: FAS post reports, and official statistics


Key ChallengesTechnology innovation

• Lower level of technology innovation in the dairy market in China leads to slow development of the overall market as it Is a key growth driver for the market growth. In China, the rate of contribution by science and technology on dairy industry is below 50% as compared with 70% – 80% in Europe and America.

Tight supply of raw milk

• Lack of enterprise-owned milk sources, and slow emergence of scale breeding is creating a demand-supply mismatch. In addition to this, low-yield milch cows are draining-out from the dairy market on the face of high prices of beef.

Growing competition from international players

• Companies from Australia, Germany and other countries have been grabbing market share since 2008. International players accounted for over 60% of the market share in 2012 as compared with below 30% in 2008.

Raising the quality of domestic milk powder products

• Domestic milk powder products have been experiencing challenges due to the milk quality issue occurred in 2008.

Decline in cows

• The number of dairy cattle in China declined by 13.89% or 2 million dairy cattles to reach 12.4 million dairy cattle in 2013 as compared with 14.4 million dairy cattle in 2012, leading to a decline in milk production by 15%-20% in 2013.


Market growth drivers• Chinese authorities have been driving a move away from small farms in favour of large factory farms supporting growth in large factor farms in the

country.

• Dairy market in China continues to source dairy products from New Zealand.

• The country’s imports of dairy products from New Zealand increased by 79% to US$3.89 billion and milk powder increased by two-fold to US$3.31 billion in 2013.

• A new trend in first-tier Chinese cities is shaping up with the growth in demand for ultra-high temperature (UHT) treated milk products.

• Growth in demand for UHT treated milk products was supported by growth in Imports of fluid milk by 67% to 300,000 tonnes in 2013.

• Favorable government policies and initiatives are supporting consolidation in the dairy market in China.

• In June 2013, Chinese government announced plans to reduce the number of domestic milk powder manufacturers to 50 from 127 and focus on supporting 10 large-scale dairy entities with an annual income of over US$0.33 billion to take over 70% of the market in five years.


Future outlook• The government‘s plan to enhance food safety standards and boost consumption of local dairy products will strengthen domestic supply of dairy products,

increase incomes of dairy farmers, strengthen industrial competition capability and achieve sustainable growth in the long run.

• China is expected to raise the contribution rate on science and technology, and boost dairy industry transformation by technological innovation.

• China is likely to source more dairy products from Australia, Argentina, the European Union, New Zealand, and the USA in 2014.

• The dairy market in China is expected to consolidate through mergers and reorganization in light of growing demand, tight raw material supply and stiff competition.

• Dairy supply and demand is expected to maintain balance in 2014 on account of increase in imports and government initiatives.

• Infant and young milk powder industry will benefit from the government‘s plan to enhance food safety standards and boost consumption of local products.

• The severe shortage of raw milk in China will further push companies to step up consolidation along the industry value chain.

• The dairy production capacity is likely to expand further on account of rising demand for dairy products in China.

• Milk production in China is projected to declined by 5.7% or 1.93 million metric tonnes to reach 31.87 million metric tonnes as compared with 33.80 million tonnes in 2012 on the back of poor weather condition, reduction in cow numbers, and lack of quality feed.


References• Foreign Agriculture Service, USDA: Official statistics, and official research

• China Customs Statistics

• milkproduction.com

• Rabobank

• United States Department of Agriculture: Economics, Statistics, and Market Information System

• Reuters

• China Economic Net

Working notes embedded

Microsoft Excel Worksheet


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Dairy market in china (Prabhat Pandey-Progressive Media Group)