1. Dairy Market in China
Prabhat
Pandey

2. Table of Contents
1. 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

3. Introduction
Purpose
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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4. Market size
Market 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%
[VALUE]
Market Size by Major Countries
(2012)
America
India
China
Brazil
Russia
Germany
France
New Zealand
UK
Turkey
others
Global milk
production 620.66
12.6%
10.7%
7.3%
6.9%
6.8%
5.0%4.2%3.0%
3.0%
2.2%
[VALUE]
Market Size by Provinces in China
(2012)
Inner Mongolia
Shandong
Hebei
Heilongjiang
Henan
Shanxi
Jiangsu
Lianing
Sichuan
Anhui
others
Milk production in
China 36.62 million
Source: Dairy Association of China
Source: Dairy Association of China
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5. 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 2013-2017
period to reach US$6.44 billion by 2017.
• 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 2013-
2017 period to reach US$2.58 billion by 2017.
• 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
Output US$41.19
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
2013 2014 2015 2016 2017
Forecasted Dairy Output by Segment
(2013-2017)
Milk Yogurt
Cheese Butter and Spreadable Fats
Cream Puddings/Desserts
Source: Dairy Association of China
Source: Dairy Association of China
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6. 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.
34,300
28,445 29,300 30,700 32,600
0
10000
20000
30000
40000
2008 2009 2010 2011 2012
Volumeinmillion
metrictonnes
Y-oY Fluid Milk Production
0.053
0.054
0.055
0.056
0.057
0.05
0.052
0.054
0.056
0.058
2008 2009 2010 2011 2012
Volumeinmillion
metrictonnes
Y-o-Y Skimmed Milk Powder
Production
1,120
997
1,030
1,100
1,160
900
1000
1100
1200
2008 2009 2010 2011 2012
Volumeinmillion
metrictonnes
Y-oY Whole Milk Powder
Production
Source: FAS post reports, and official statistics
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7. Key Challenges
Technology 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.
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8. 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.
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9. 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.
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10. 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
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11. Thank You