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China's rising dairy
industry
HOHHOT - China
hopes to boost the global dairy industry over the
next 10 to 15 years, thanks to the growing
consumption of milk and other dairy products in
the world's most populous nation.
With 1.3
billion people but only 13% of the world average
milk consumption, China is very likely to increase
the global dairy output by expanding production to
meet its own demands, said Wang Huaibao, vice
director of the China Association of Dairy
Products Industries. China's dairy production has
been posting double-digit growth annually since
the economic reforms began in the late 1970s. It
presently produces 16.25 million tons of dairy
products a year, said Wang.
The country
also enjoys price advantages compared with many
developed countries. In 2000, the most recent year
for which data is available, the cost per kilogram
for fresh milk in China was 45% lower than that in
North America and the European Union, he said. But
China's per capita consumption of dairy products
is only 13 kilograms a year, much lower than the
average of 300 kilograms reported in developed
countries and the global average of 100 kilograms,
according to Wang. "There's massive potential in
the Chinese market."
With the sustained
growth of China's economy and improvements in the
standard of living, Wang estimates China's per
capita annual consumption of dairy products will
increase to 18 kilograms by 2015. The country's
dairy production, in the meantime, will grow at
6-9% per year to top 25 million tons in 2015, he
estimates.
The world's milk production has
seen sluggish growth, between 1-2% annually over
the past decade, and the United Nation's Food and
Agricultural Organization says the current
production is around 594 million tons. The UN
organization has attributed the industry's
slowdown to restrictions on milk production from
developed countries, which collectively produce
71.7% of the world's dairy output. Meanwhile,
sustained growth reported for the dairy industries
of Asia, Latin America and Oceania has been mostly
offset by declining production for eastern Europe
and the Commonwealth of Independent States, say
analysts with the organization. They say Asia and
Latin America, which have booming demand for dairy
products, will continue to contribute to global
milk production in the coming decade.
But
Wang warned domestic dairy producers to remain
clear-headed and avoid hasty expansion in the
currently heated market. "We have to remember that
many people in China are not yet ready to include
milk in their diet," he said. "Most of the
country's farmers never drink any because they
don't like it or can't afford it." Lactose
intolerance also discourages many Chinese from
consuming dairy products. A recent survey showed
that nearly 60% of Beijing residents cannot digest
large amounts of lactose, the main sugar found in
dairy products, and experience symptoms ranging
from rashes to diarrhea and other digestive
disorders, Wang said.
Moreover, in large
Chinese cities such as Beijing, Shanghai and
Guangzhou, per capita annual consumption of fresh
milk has reached 40 kilograms, which is already
close to Asia's average consumption."So there's
little room for further growth in these cities,"
said Wang. He also advised domestic dairy
companies to avoid "suicidal" price wars among
themselves. "Such disorderly competition will
benefit no one," he warned.
'Suicidal
competition'
In 2003, such competition left
27.5% of China's total 1,600 dairy firms in the
red, with a total deficit of 510 million yuan
(US$61 million). "Their loss for that year was 66%
higher than in 2002, surpassing the average annual
growth of 46% for the entire industry," said Wang,
quoting incomplete figures released by his
organization. He said the situation became even
worse in 2004, when less than 25% of domestic
dairy producers made a profit.
Wang said
it is important for the dairy sector to map out an
overall plan to promote development in a
coordinated way. "Regulators from the industry
itself, as well as industry and commerce
authorities, should work together to step up with
management and monitoring...and set a market
access threshold for dairy enterprises so as to
prevent disorderly competition," he said.
Liu Zhenbang, a well-known economist in
China and director of the China Research Institute
of Rural Economy and Technology, added that the
competition in China's dairy industry has actually
just started. Liu made the remarks at a recent
summit meeting on rural economy and dairy industry
held in Ningxia Hui Autonomous Region in Northwest
China. According to Liu, real competition has just
started in the Chinese dairy industry. There have
been no large private dairy enterprises in China
in reality; present dairy giants in China such as
Mengniu and Yili are actually former state-owned
enterprises, and the advantages they now boast are
actually just the result of their past status.
Experts recommend
diversification
Recently, dairy enterprises
have been facing rising inventories and falling
profit margins. Many observers hold that China's
dairy industry has entered a stage of monopoly
with dairy giants holding sway, leaving many small
and midsize enterprises feeling nervous. Analyzing
the phenomenon, Liu asked the small and midsize
enterprises to be more optimistic since they still
have substantial potential.
Liu cited
France as a good example. In France, much of the
country's cheese production is made by
household-based workshops, whose products are very
popular. As long as they can make good use of
local geographic advantages and provide products
with distinctive characteristics, the small and
midsize enterprises in west China can be
successful in the market. They should not be
afraid of competition from larger enterprises, Liu
noted.
Wang agreed that domestic dairy
makers should tailor more diverse products to
different customers, and further recommended
minimizing the use of antibiotics to improve
product quality. In 2004, researchers from Shanxi
Agricultural University, in north China's Shanxi
province, developed a new drug made from
dandelions to treat mastitis, a disease whose
incidence rate is 30% on domestic dairy farms. The
new medicine reduced the cost for mastitis
treatment from 23 yuan to 9 yuan per cow, said
Professor Zhao Xiaoming with the university.
(Asia Pulse/XIC) |
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