Untitled

Milking China's Cash Cow
Coen Poon
Embassy of the Kingdom of the Netherlands
Department of Agriculture, Nature and Food Quality
4, Liangmahe Nanlu Road
Beijing 100600, P.R. China
www.nlpekagr.com
Foreword
This report on the Chinese dairy industry has been written
as part of my assignment for the newly established NABSO
office in Harbin and the Agriculture, Nature & Food Quality
(ANFQ)-department of the Embassy of the Kingdom of the
Netherlands in Beijing.
While conducting research, I learned a lot about the world
of dairy, and the position that China takes in this industry.
During this time, I had the privilege to get a lot of support
from colleagues but also experts in the field. Hereby, I would
like to thank all the persons that contributed to this report,
for their continuous support and constructive feedback. I will
take this "dairy"-experience and put it to good use in future
research assignments.
TABLE OF CONTENT
Chapter 1 Introduction
7
Chapter 2 China's dairy landscape
8
1.1
1.2
1.3
2.1
2.2
2.3
2.4
2.5
2.6
Scope of Research
Structure of Report
Data Research
China's milk production regions
China's dairy belt
Dairy producing provinces
Milk production
Number of dairy cows
Productivity per cow
Chapter 3 Dairy herd improvement
3.1
3.2
3.3
Subsidies to improve herd quality
Foreign suppliers for quality-breed
subsidy project
World Bank project
Chapter 4 Dairy cattle feed
4.1
4.2
Concentrated feed
Major feed companies
7
7
7
8
9
10
10
10
10
12
12
12
13
14
15
15
Chapter 5 Dairy farming & collection 17
5.1
5.2
5.3
Major dairy farms
Collection stations
Farmers & processors
Chapter 6 Dairy processing
6.1
6.2
6.3
6.4
6.5
Major dairy processors
Ownership structure
International dairy companies
Dairy products
Power balance within
the dairy chain
17
18
19
20
20
21
22
22
22
Chapter 7 Trade relations
23
Chapter 8 Summary & Conclusions
25
References
27
7.1
7.2
7.3
8.1
8.2
Imports
Exports
Trade Barriers with the Netherlands
Summary
Conclusions
23
23
23
25
25
5
Chapter 1 Introduction
In 2006, Asia surpassed Europe as world's largest milk
production region, accounting for 34% of total global output.
Within this region, China has shown the most impressive
growth figures over the past five years, with domestic milk
output more than doubling in size (FAO, 2006). While China's
milk production continues to grow rapidly in response to
domestic demand, it still fails to keep up with its population's
enormous thirst for dairy products. Milk deficit is thus
compensated for by imports. The Chinese government
intends to raise milk productivity by increasing average
yield per cow, rather than relying on dairy herd expansion
like previous years. International dairy companies could
benefit from the Chinese emphasis on increasing milk
productivity, for they could bring in their expertise in milk
production, processing and management. This report aims
to get a better understanding of the Chinese dairy industry
and will focus mainly on the "upstream" activities of the
dairy chain i.e. production, collection, and processing. A
clear overview of the business environment should provide
useful information for stakeholders of NABSO Harbin, in
conducting business on China's domestic dairy market. This
research also serves as an outline for further continuous
field research by NABSO Harbin.
1.1 Scope of Research
The Chinese dairy industry encompasses many companies,
and as it would be unfeasible to provide detailed information
on all entities of the dairy chain within the set timeline,
only the major production provinces, dairy farms and
processing companies in the industry will be highlighted.
Research will focus on dairy in general, with a specific
emphasis on cow milk since it represents a major share of
the industry. The dotted lines of figure 1 illustrate the scope
of this research on the dairy supply chain.
chapter goes into domestic dairy farming as well as the
various types of collection stations that supply raw milk to
processing companies. Chapter six highlights the domestic
processing industry with its major players and key products.
It also shows the power balance within China's dairy chain.
Chapter seven depicts the country's trade relations. Summary
and recommendations are set forth in the final chapter.
1.3 Data Research
Research is conducted through the study of secondary
sources taken from EU agencies, articles and newspapers,
case studies about the industry, company websites and
official statistics from China's National Bureau of Statistics
and Ministry of Agriculture (MOA). Additional information
is obtained from available dairy consultants and other
experts in the field of dairy business.
Note: Upon researching the various sources of data, some
disparities were found. These discrepancies can be explained
from the fact that different methods of data gathering were
employed, which therefore lead to other results.
Nevertheless, despite these disparities, the statistics do
provide for a general 'picture' of the current situation, and
the way certain trends are evolving in the industry.
Nevertheless, it should be clear that the provided numbers
and percentages found in this report are estimates and
should therefore not be used as a sole source of information
for decision making.
1.2 Structure of Report
This paper begins with a short glance at China's dairy
landscape which is followed by an overview of the country's
main production regions and provinces. The definition of
milk production and its components will be further explored.
Next chapter looks into China's dairy herd improvement,
in particular the subsidies that have been made available
by the central government, but also the World Bank. Dairy
cattle feed will be highlighted in chapter 4. The following
Figure 1: Dairy supply chain
7
Chapter 2 China's dairy landscape
China's dairy industry has witnessed an enormous growth
over past two decennia, with domestic demand and supply
for dairy products expanding each year. Domestic raw milk
production has grown rapidly over the past few years,
reaching 28.7 million metric tons (mt) in 2005 (China
Statistical Yearbook, 2006). Cow milk represents over 95%
of gross raw milk production. However, supply fails to keep
up with the country's demand for dairy products. Milk deficit
is therefore compensated with imports. Total domestic dairy
sales were valued at RMB 61.4 billion in 2005, and demand
for dairy products is expected to keep growing strong
(Euromonitor International, 2006).
Besides costs reduction and product promotion to enlarge
market share, dairy processors have also been busy securing
raw milk resources, and extending distribution lines. In the
distant past, major dairy processors located near big cities
had an enormous advantage due to their proximity to large
urban consumer markets. Also, these companies had their
own distribution network as back in those days, milk was
home delivered. However, the emergence of supermarkets
over the past decade, in combination with the adoption of
'ultra high temperature'-treated (UHT) milk, has allowed
for the advance of dairy processors in regions further away
from consumer markets.
On April 2006, Chinese premier Wen Jiabao expressed his
wish that all Chinese people, in particular little children,
could drink 500g milk per day. To fulfill this ambitious dream,
China's central government has set quantitative targets for
its 11th Five-Year Plan, which specifies among others that
milk production should reach 38 millions mt annually by
2010. Milk productivity will be raised by increasing average
yield per cow, rather than relying on dairy herd expansion
like previous years.
2.1 China's milk production regions
A closer look at China's dairy production reveals how this
sector used to be dominated by several large state-owned
farms, whereas today's industry is characterized by many
small, backyard farmers with an inventory of around 1-4
cows. These households constitute over 80% of country's
total raw milk production. Dairy production in China is thus
highly diverse, ranging from small backyard farmers in
remote villages with one or two cows, to large-scale private
farms with hundreds of cows.
At processing level, major dairy manufacturers fight out a
fierce price war, which is especially fierce in the fluid milk
segment (Bean et al, 2006). Major dairy firms have drastically
cut their prices, squeezing profit margins to a minimum.
In an effort to remove the bottleneck in the supply of milk,
the Chinese government has decided to appoint five national
dairy production bases. Due to the country's huge size,
domestic milk production differs per region, depending on
the specific characteristics of that particular area like climate
conditions. The domestic dairy industry distinguishes five
milk sourcing zones:
* Suburban production areas that are found near major
cities like Beijing, Shanghai and Tianjin. Production in
these areas is characterized by a relatively large inventory
of high-yield animals, intensive feeding, a high level of
market-orientation and a high degree of vertical
integration. Quality of raw milk is also relatively higher
than other areas. Nowadays, farmers in this area face
increasing pressure due to lack of farming space and a
shortage of feed and forage grass. Dairy processor Sanyuan
recently announced that it will relocate its dairy farms
out of the 6th ring road of Beijing, to far suburban districts,
other counties and provinces (BODC newsletter, 2007).
Inner Mongolia. Land is pastoral, semi-agricultural and
semi-pastoral. These provinces possess rich forage grass
and feed resources, climate is ideal for breeding livestock,
and feeding costs are low. Milk production in this region
thus has a clear price advantage. Nevertheless, whilst
herd size is large, average yield is still comparatively low
due to the large proportion of small backyard farmers.
Leading dairy processors Yili and Mengniu are based in
Inner Mongolia.
* The central plain production region refers to Hebei, Shanxi,
Henan and Shandong. Feed costs in these cropping areas
are low. However, dairy yield is relatively low. Farmers in
this region feed their animals with all sorts of edible
materials produced on their farms plus some purchased
feed products. Manure is used to fertilize land. The scale
of operation is often confined to the availability of feed
resources on their farms or local markets.
* The Western production region includes Xinjiang, Shaanxi,
Ningxia, Gansu, Qinghai, and Tibet. This region is
characterized by its vast areas of pastoral land. Milk is
primarily used for self-consumption and the nursing of
young animals. Grassland resources in pastoral areas
suffered from degradation as a result of over-grazing and
"inappropriate management due to a lack of clearly
defined property rights" (Zhou et al, 2002). For this reason,
the central government has decided that by 2010, more
than 40% of usable pastoral land will be prohibited for
grazing, fallow, or shift-grazing; and overgrazing on
natural pastoral land will be reduced from the current
36% to below 25%.
* Southern base covers Fujian, Guangdong, Guangxi,
Zhejiang, Yunnan, Sichuan, and Jiangsu. This region is
characterized by a sub-tropical climate, which is less
appropriate for dairy cattle and more suitable for buffalos.
Buffalo inventory in this region accounts for over half of
the national total. Dairy processors in this region focus
on liquid milk, in particular buffalo milk. Goat milk
processing is expected to become more prominent.
2.2 China's dairy belt
Most domestic raw milk sources are found in China's
northern parts which have a favorable climate and abundant
land and labor resources. The top 5 producing provinces
and autonomous regions account for over two-third of
China's total cow milk production. For this reason, the most
northern provinces combined are also referred to as the
'dairy belt'. Figure 3 shows these provinces and their share
in domestic milk production as well as their increase in milk
production from 2004.
Outside the dairy belt region, worth mentioning are the
provinces Henan and Liaoning which have shown relatively
much growth in dairy production, an increase of 50% and
34% respectively compared to 2004.
Figure 3: China's dairy belt
* The Northeast - Inner Mongolia production area includes
the following provinces: Heilongjiang, Liaoning, Jilin, and
Figure 2: Comparison of Cow Milk Production 1995 - 2005 (million metric tons)
Source: China Dairy Yearbook (2006)
Source: Embassy of the Kingdom of the Netherlands in Beijing, based on data from Rabobank (2005) and China Statistical Yearbook (2006)
8
9
2.3 Dairy producing provinces
Total domestic milk production reached over 28 million mt
in 2005, whilst total cow milk output was figured at 27.5
million mt. That year, the total number of dairy cattle was
estimated at little over 12 million heads (China Dairy
Yearbook, 2006). The major dairy producing provinces,
including cattle inventory are shown in table A. It has been
forecasted that the witnessed production growth from
previous years, will slow down due to rising raw material
costs for farmers with milk prices remaining unchanged
(FAO, 2006).
Inner Mongolia clearly ranks as the number one raw milk
producing province in China, both in terms of total milk
output and total cow milk production. This position is partly
due to the presence of major dairy processors Yili and
Mengniu, whom are major buyers of raw milk produced in
the province. Also, the provincial government provides
financial support through 'loans on key dairy projects, tax
reductions for major diary companies, and investment in
improving farming, breeding technology and irrigation
infrastructure' (Lou, 2006).
2.4 Milk production
Milk production is the result of an exchange between two
components: number of dairy cows and productivity per cow.
China's past growth in dairy production was mostly based
on the expansion of cow herd size rather than an increase
in average yield. Whilst the number of dairy cows has grown
rapidly over the past few years, from 2.7 million heads in
1990 to 12.8 million heads in 2005, average yield per cow
has not improved much and still lags behind Western
standards. As future dairy herd will likely be restrained by
limited land, water, feed and energy resources, the Chinese
government aims to increase dairy production by raising the
average yield per cow rather than further expanding the
number of dairy cows (Fuller et al, 2005; Bean et al, 2006).
2.5 Number of dairy cows
milk production was very low, and the number of dairy
cows was estimated at less than 0.5 million heads. Rural
collectivization meant that private animal rearing was
prohibited, and state- or collective-owned dairy farms
were the major milk suppliers. During that time, the
domestic dairy processing industry remained underdeveloped due to the limited supply of raw milk. After
reforms, private households were allowed to raise cows,
and from that moment the country's dairy herd witnessed
an enormous growth. By 2005, the number of dairy cows
reached roughly 12 million heads, and the Chinese
government expects dairy cattle inventory to expand
even further in the next coming years, reaching 15
million heads and 18 million heads respectively in 2010
and 2020 (China Dairy Yearbook, 2006).
Demand for imported dairy cattle has decreased, leading
to more intensive competition among importers. Declining
dairy prices of imported dairy cattle resulted in smaller
profit margin, and it has been forecasted that only a few
large importers will remain.
2.6 Productivity per cow
The second component of milk production is output per
cow. Low productivity per cow has often been named as
one of the more notable issues in the Chinese dairy industry
that need to be improved. Average yield per cow has been
estimated at little above 2,000kg a year. Milk yield per cow
differs per farm as well as area/province depending on
various factors ranging from animal feed and breeding
techniques, to farm management, weather conditions, etc.
Data on average productivity per cow at small, backyard
household level is not available, for China sees too many
of these fragmented households. It is estimated that average
milk yield of small backyard households lies around 1,500kg
per cow. Large-scale private dairy farms produced 5,342kg
per cow on average, whereas state-/collective farms realized
an average milk yield of 6,091kg per cow in 2003 (Fuller et
al, 2005).
Figure 4: Development of China's milk sector, 1999-2005
Source: China Dairy Yearbook (2006)
Figure 5: Average milk yield 1992 - 2003
˙§˛»… ¶””¯
Prior to the country's economic reforms in 1979, domestic
Source: National Agricultural Production Cost and Return Survey (from Fuller et al, 2005)
Table A: Major Provinces in dairy production, 2005
No
Province/Municipal
1
2
3
4
5
6
7
8
9
10
Inner Mongolia
Heilongjiang
Hebei
Shandong
Xinjiang
Shaanxi
Henan
Liaoning
Shanxi
Beijing
Cow milk production
(million mt)
6.91
4.40
3.40
1.87
1.52
1.13
1.04
0.74
0.71
0.64
Dairy cattle inventory
(million heads)
2.68
1.10
1.97
0.70
2.15
0.46
0.31
0.24
0.30
0.16
Source: China Statistical Yearbook (2006); China Dairy Yearbook (2006)
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11
Chapter 3 Dairy herd improvement
To increase productivity per cow, the Chinese government
decided to put more emphasis on improving the quality
of its dairy cattle population. Holstein cattle breeds
account for about half of country's total dairy cattle
inventory, and can mainly be found in the northern part
of China. Besides Holstein and their crossbreeds with
local cows, other dairy breeds include: Simmental, Red
Steppe and Xinjiang Brown. Official documents show that
the central government wants to promote animal
husbandry and raise the quality breed ratio. For this
purpose, a dairy cattle breeding system will be set up,
with measures ranging from government subsidies for
quality frozen semen, quality breed registration to support
for dairy cattle breed selection and registration (China
Dairy Yearbook, 2006).
3.1 Subsidies to improve herd quality
In 2005, the Ministry of Agriculture (MOA) allocated USD
1.88 million to subsidize quality-breed dairy cattle in 15
counties in four provinces. A special program was set up
to subsidize frozen semen for 675,000 heads of Holstein
dairy cattle. For 2006, the central government raised
subsidies to around USD 12.5 million, which benefits 178
counties in 22 provinces. The government aims to have
3.47 million dairy cattle enhanced. The main subsidized
Table D: Major animal embryo importers in 2005
breed is Holstein cattle, and some quality breeds in dairy
buffaloes, brown cattle and yaks. Subsidies to farmers
range from USD 1.9 for each straw of Holstein frozen
semen, and USD 1.3 for each straw of frozen semen of
brown cattle/yak. Each head of dairy cattle receives subsidy
on two straws of frozen semen (BODC, 16/08/06, Bean et
al, 2006). The NABSO office in Harbin will look further into
the subsidy program, and provide feedback to her
stakeholders.
3.2 Foreign suppliers for quality-breed
subsidy project
Within the USD 12.5 million subsidy program, USD 2.5
million has been allocated to subsidize the import of
dairy cattle frozen semen or embryos. Some local
provincial governments have launched similar
programs. MOA has appointed 8 foreign companies to
supply frozen semen or embryos. These firms include:
1) ABS Global Inc., 2) Word-Wide Sires, LTD. and 3)
Holstein Association, 4) Semex Alliance, 5) Alta Genetics
Inc., 6) GGI-German Genetics International GmbH, 7)
Nordrind GMBH and 8) CRV Holding B.V. (BODC,
04/09/06, Bean et al).
Table B: Major companies in dairy embryo production
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Company
Beijing Dairy Cattle Center (National Dairy Embryo Engineering Center)
Institute of Animal Science, CAAS
Beijing Glorious Land Agricultural Co., Ltd
Xinjiang Gold Cattle Bio. Inc.
Hutubi Embryo Engineering Center
Xinjiang Tiankang Animal Science Biotechnology Co., Ltd
Hebei Cattle and Goat Embryo Engineering Center (Hebei Agriculture University)
Inner Mongolia Livestock Improvement Center
Institute of Animal Science, Heilongjiang Land Reclamation Academy of Agriculture Science
Institute of Animal Science, Shandong Academy of Agriculture Science
Shandong OX Biotechnology Co., Ltd
Shandong Zhongda Animal Embryo Engineering Center
Yunnan Zhongke Embryo Biotechnology Co., Ltd
Shanghai Dairy Breeding Center Co., Ltd
Province
Beijing
Beijing
Beijing
Xinjiang
Xinjiang
Xinjiang
Hebei
Inner Mongolia
Heilongjiang
Shandong
Shandong
Shandong
Yunnan
Shanghai
Source: China Dairy Yearbook (2006)
#
1
2
3
4
5
Company
Beijing AnBo Embryo Biotech Center
Shanghai Shenlong International Trading Corp.
Inner Mongolia Gold Bio-Tech R&D Co. Ltd.
Xinmao Import & Export Co., Ltd.
Canelite Agriculture & Livestock Co., Ltd.
HQ
Beijing
Shanghai
Hohhot
Beijing
Tianjin
Source: China Dairy Yearbook (2006)
Table E: Major frozen bovine semen importers in 2005
#
1
2
3
4
5
Company
IND Lifetech (Qingdao) Inc.
Shanghai Shenlong International Trading Corp.
Beijing Yin Xu Import & Export Co., Ltd.
China National Animal Breeding Stock Import & Export Col, Ltd.
Xinmao Import & Export Co., Ltd.
HQ
Qingdao
Shanghai
Beijing
Beijing
Beijing
Source: China Dairy Yearbook (2006)
3.3 World Bank project
In 2006, the World Bank launched a large project in
Heilongjiang province to improve working and living
standards of dairy farmers, and demonstrate new
technologies to reduce greenhouse gas emissions and
increase carbon sequestration. For this purpose, the World
Bank approved a USD 100 million loan, and the provincial
government will provide another USD 100 million. The
project consists of four major components. The first
component refers to "Dairy Cow Production" which includes
the construction of 7 dairy farms each raising 1,000 cows,
and building 125 demonstration cow farm "gardens". In
total 40,000 heads will be bought, and 40% will be imported
from abroad. The second part refers to a "Dairy Cattle Breed
Improvement", which includes the construction of 1 lab
and 1 data processing center for the purpose of dairy herd
improvement. At least 800,000 straws of frozen bovine
semen will be imported from abroad within 5 years. The
third part focuses on "Environmental Protection" which
aims to improve crop stem production and cow waste
treatment. This will mainly be financed by a grant of the
Italian government which consists of USD 5.5 million. The
fourth component refers to "Project Management Support"
which aims to improve management, monitoring and
evaluation of project activities. The World Bank project runs
until 2011, and is open to all companies (Bean et al). Our
NABSO office in Harbin will follow further development of
this project, and keep her stakeholders updated on relevant
news.
Table C: Major dairy cattle importers
#
1
2
3
4
5
Company
China National Animal Breeding Stock Import & Export Co., Ltd.
Shijiazhuang Qianxiang Trade Co., Ltd.
Shandong Mengniu International Trading Co., Ltd.
Sinofarm Genetics & Seeds (Group) Co., Ltd.
Xinjiang Aksu Agricultural Reclamation Import & Export Corp.
HQ
Beijing
Shijiazhuang
Taian, Shandong
Beijing
Aksu, Xinjiang
Source: China Dairy Yearbook (2006)
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Chapter 4 Dairy cattle feed
While the main emphasis has been set on high-quality
genetics, central government has also been actively
promoting use of quality animal feeds. China is world's
second-largest producer of animal feed products, next
to the United States. In 2005, the country's total amount
of ruminant animal feed output was 3.87 million tons,
which consisted of 2.36 million tons of concentrate
supplement feed, 1.31 million tons of concentrate output,
and 0.2 million tons of additive premix output. It has
been estimated that dairy feed accounts for about 30%
of ruminant animal feed. While the dairy feed segment
is relatively small, it shows considerable more growth as
compared to other feed segments in China (China Dairy
Yearbook, 2006).
The domestic feed industry is dominated by backyard
production. However, as domestic milk production is
gradually shifting from grazing based towards more feedbased, animal feed practices are changing along. A
consolidated, more efficient feed industry is emerging in
China, with scaled-up plants and improved infrastructure.
Small backyard households rely more on self-prepared
Figure 6: Major compound feed segments in China
Figure 8: Different kind of roughage used for the dairy cows
animal feed, while modern large-scale private farms and
state-owned farms use industrial feed.
Concentrate supplement is comparable to compound feed
which includes all nutritional components except for the
addition of fodder like straw, hay, corn, silage, or a mixture
of these raw materials. Concentrate feed makes up around
30-50% of total feed, and can be described as concentrate
supplement minus the energy component. As with
concentrate supplement, fodder still has to be added. Lastly,
additive premix feed includes minerals and a mixture of
vitamins. Daily requirements of this type of feed lies around
100 gram per day, and is often put on top of the feed.
Major feedstuffs for dairy cows include crop straw, silage
and manufactured feed with soybean and feed grain. Silage
is most often used as roughage, followed by straw, hay,
and green chop (Främling, 2005; Lou, 2006). It has been
reported that China has a serious shortage of quality coarse
feed. Many places use crop straw as coarse feed, which
greatly affects production level of dairy cattle (BODC,
19/10/06).
Source: Främling (2005)
4.1 Concentrated feed
The concentrated feed segment experiences much growth
in China as many farmers buy this type of feed and blend
it to create their own mixture of cheap animal feed.
Research by Främling (2005) indicates that 75% of 67
farmers fed their cows "ready-mix" as concentrate. Besides
ready-mix, other concentrates were also used, for most
farmers did not believe the ready mix to be complete.
Farmers whom did not purchase the pre-prepared product
compiled their own mixture of concentrates, often
including grain corn. Her study further shows that most
farmers were feeding their cows 3 times a day, with free
access to forage. Over half of the respondents allowed
their cattle to access water freely, while the remaining
watered their herd three times a day, either before or
after feeding.
Table F: Different kind of concentrates
Type of Concentrate
Ready mix
Grain corn
Peanut meal
Cereal
Minerals
Soybean
Cotton seed
# of farms
50
48
26
20
20
19
7
% of farms
74.6
71.6
38.8
29.9
29.9
28.4
10.4
Source: Främling (2005)
4.2 Major feed companies
Several international feed companies have stepped into
China's animal feed market. Nutreco International has
merged with Beijing Dejia Animal Husbandry. Provimi set
up manufacturing plants in the provinces Jiangsu, Guangxi
and Chongqing. Land O'Lakes has established feed mills in
Beijing and Tianjin (Lou, 2006; BODC newsflash, 2007).
Table G: Major dairy cattle feed suppliers in 2005
No.
1
2
3
4
5
Company
Tianjin Carn Feed Co., Ltd
Hebei Kaite Group
Inner Mongolia Muquan Yuanxing Feed Co.
Beijing Sanyuan Wellhope Co., Ltd
Shanghai Bright Holstein Co., Ltd
Headquarters
Tianjin
Shijiazhuang
Huhehaote
Beijing
Shanghai
Source: China Dairy Yearbook (2006)
Table H: Major international suppliers of dairy cattle feed in 2005
Source: Bean and Zhang (2005)
Figure 7: Dairy cattle feed output in China
No.
1
2
3
Company
Agribrands Purina Feedmill Co., Ltd
Chia Tai Group (Charoen Pokphand)
Land O'Lakes/Great Wall Enterprise Nutrition Technologies (Beijing) Co., Ltd
Headquarters
Langfang, Hebei
Beijing
Beijing
Source: China Dairy Yearbook (2006)
Source: China Dairy Yearbook (2006)
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15
Table I: Major dairy cattle feed additive suppliers in 2005
No.
1
2
3
Company
Beijing Eastern Bell Science & Technology Group
Beijing Oriental Kingherd Biotechnology Co., Ltd
Shanghai Silver Eagle Biotechnical Col., Ltd
Headquarters
Beijing
Beijing
Shanghai
Source: China Dairy Yearbook (2006)
Table J: Major international suppliers of dairy feed additives in 2005
No.
1
2
3
4
5
Company
Tianjin Carn Feed Co., Ltd
Hebei Kaite Group
Inner Mongolia Muquan Yuanxing Feed Co.
Beijing Sanyuan Wellhope Co., Ltd
Shanghai Bright Holstein Co., Ltd
Source: China Dairy Yearbook (2006)
Headquarters
Tianjin
Shijiazhuang
Huhehaote
Beijing
Shanghai
Chapter 5 Dairy farming & collection
In 1985, state-monopoly on circulation of livestock products
was abolished and replaced by a system in which state,
collective and private channels co-exist and compete with
each other. Nowadays, China's cattle raising systems can
be divided into three basic categories: small-scale backyard
farms, specialized households, and commercial farms. It is
estimated that around 80% of China's present milk output
comes from individual backyard farms, roughly 15% of dairy
output comes from large-scale private farms, and merely
5% from state-owned farms (USDA FAS, 2006; Zhou, 2006).
At present, it has been estimated that around 65% of raw
milk production is based on manual milking (Bean et al,
2006; China Dairy Yearbook, 2006). However, the Chinese
government intends to increase the rate of mechanized
milking facilities to 70% and 95%, by respectively 2010 and
2020, as put forward in its 11th Five-Year Plan. The large
number of fragmented small-scale farmers is seen by many
as a huge constraint for the development of China's dairy
industry, for it presents a major obstacle in organizing,
monitoring, and standardizing the quality of dairy products.
Most of these farmers have little knowledge on dairy
farming, scientific feeding, and are often unable to prevent
and control epidemic diseases among dairy cattle. It is
expected that in future, the share of scaled dairy farms will
increase as farmers are being encouraged to enlarge their
scale of farming.
As mentioned, small backyard households constitute a major
part of the country's total farmers, most of them holding
1-4 cows. Large-scale private farms are often owned by a
dairy processor or a group of dairy farms, with inventory
ranging between 100 and 1,000 cows. State-owned farms
have the smallest proportion in total domestic raw milk
production. Most of these farms are located in the proximity
of large urban consumer markets, and have between 1,000
and 2,000 cows in stock (Lou, 2006).
5.1 Major dairy farms
Clearly, large-scale private farms and state-owned farms are
the most interesting farms to dairy companies, as these
farmers are more willing and have the financial means to
invest in dairy production. The table below shows major
dairy farms in China and their contact details.
Figure 9: China's milk production structure
• ”¯•¯
˜ˇ´ˆ
Source: Främling (2005)
Table K: Milk production structure in China
Type of farm
Small private households
Large-scale private farms
State-owned farms
Cow stock size (heads)
1 - 100
101 - 1,000
> 1,001
Average yield (kg/head)
n.a.
5342
6091
Total milk output (%)
80
15
5
Source: Lou (2006); Fuller et al (2005)
Table L: Major dairy farms in China
#
1
2
3
4
5
6
7
8
9
10
Company
Beijing Sanyuan Lvhe Farming Center
Daqing Yinluo Dairy Industry Group
Inner Mongolia Ruquan Dairy Co., Ltd
Bright Dairy & Food Co., Ltd
Nanjing Dairy (Group) Co., Ltd
Jinan Jiabao Dairy Co., Ltd
Xinjiang Gold Cattle Group
Kunming Xuelan Dairy Co., Ltd
Lanzhou Dairy Cattle Breed Farm
Changji Hutubi Breeder Cattle Farm
HQ
Beijing
Daqing, Heilongjiang
Tuyouqi, Inner Mongolia
Shanghai
Nanjing
Jinan
Urumqi
Kunming
Lanzhou
Changji, Xinjiang
Source: China Dairy Yearbook (2006)
16
17
1) Beijing Sanyuan Lvhe Farming Center
: Mr. ZHOU Weidong
Director
: Jiugong township, Daxing, Beijing
Address
: 100076
Postcode
Telephone : +86-10-67992012/67968550
: +86-10-67992022
Fax
: N.A.
Website
8) Lanzhou Dairy Cattle Breed Farm
: Mr. LI Minggao
Director
: #697 Duanjiatan
Address
: 730030
Postcode
Telephone : +86-931-4677345
: +86-931-7691235
Fax
: N.A.
Website
2) Inner Mongolia Ruquan Dairy Co., Ltd
: Mr. GUO Yufeng
Director
: Tuyouqi, Baotou, Inner Mongolia
Address
: 014100
Postcode
Telephone : +86-472-8922552
: +86-472-8922552
Fax
: N.A.
Website
5.2 Collection stations
3) Bright Dairy (Group) Co., Ltd
: Mr. WANG Jiafen
Director
: #578 Wuzhong Road, Minhang District,
Address
Shanghai
: 201103
Postcode
Telephone : +86-21-54584520
: +86-21-64655033
Fax
: www. brightdairy.com
Website
China sees a large number of small backyard farmers whom
are fragmented all over the country, and since dairy firms
cannot address each and every farmer individually for raw
milk, these processing companies turn to collection stations,
which connect the individual farmer with the processing
company. Nowadays, small-backyard farmers are practically
obliged to send their milk to collection stations, as dairy
processors do not accept small individual amounts of raw
milk (Webber and Wang, 2003). Raw milk from collection
stations is often supplemented by the output of directowned farms and random purchases. A distinction can be
made between the various centers as shown in the figure
below.
Figure 10: Classification of raw milk collection stations
4) Nanjing Dairy (Group) Co., Ltd
: Mr. CAI Jingdong
Director
: #5 Tongwei Road, Nanjing, Jiangsu
Address
: 210014
Postcode
Telephone : +86-25-84433114/84431822
: +86-25-84433867/84875156
Fax
: www.wgdairy.com.cn
Website
5) Jinan Jiabao Dairy Co., Ltd
: Mr. SUN Zuogang
Director
: #6 Jiabao Road, Jinan, Shandong
Address
: 250100
Postcode
Telephone : +86-531-87999999
: +86-531-86666666
Fax
: www.jiabaoruyue.com.cn
Website
6) Xinjiang Gold Cattle Group
: Mr. ZHANG Danfeng
Director
: #58 Zhongya Avenue, Urumqi Economic &
Address
Technological Development Zone, Xinjiang
: 830026
Postcode
Telephone : +86-991-3751328
: +86-991-3711224
Fax
: www.gcbio.cn
Website
7) Kunming Xuelan Dairy Co., Ltd
: N.A.
Director
: #100 North Road, Huancheng
Address
: 650051
Postcode
Telephone : +86-871-5151988
: +86-871-800889
Fax
: www.xuelan.com
Website
18
Source: Zhang (2007)
Milk collection stations can be divided into two types. Those
stations that are set up by an independent third party and
deliver milk to any dairy processor they prefer, and collection
stations that are established with money invested by a
processing company. The latter stations are obliged to
supply their milk to one specific dairy company. Dependent
stations are often better equipped than their independent
counterparts.
* The independent collection station has dairy farmers milk
their cows at their own farms, after which the raw milk
is brought to a collection center. At this station, raw milk
is then poured together with the output of other dairy
farmers, and delivered to a processing firm. Some of these
collections stations are known to have nearly 5,000
individual farmers that travel up to 40 km to deliver the
minimally refrigerated raw milk (IFC, 2004). Lack of effective
quality & hygiene regulation and supervision, leaves much
room for bad practices. For instance, milk from the
individual farmer can be infected, and thus contaminate
the whole milk collection. It would be difficult to trace
down the culprit. In addition, as payment was paid based
on delivered volume, some farmers would pour together
water and milk, to get some extra earnings. Today, raw milk
brought in by the individual farmer is often double- or triple
checked by the collection center so to guarantee the quality
of the milk. The purchasing price of raw milk in Wulanchabu
(Inner Mongolia province), has been set at RMB 1.81/kg by
Yili Group and Mengniu Group since February 2007; raw
milk price paid to farmers at dairy parks has been set at RMB
1.85/kg (BODC newsflash, 2007).
* Dependent collection centers can be divided into two
types. A dairy village refers to a milking station that has
its milking equipment, cooling facilities, and buildings
provided by a processing company or local government
authorities. Local farmers can bring their cows to the
center two to three times a day for milking. Raw milk
testing, hygiene maintenance, transport to the processing
company and payment to farmers, are handled by the
collection station. These stations get paid based on the
quality grade of raw milk they provide. Fixed contracts
with milk processors mean that raw milk is delivered to
one specific dairy company.
* The second type of dependent collection station refers
to a dairy park, which is also referred to as farm garden.
It is an enclosed terrain which is divided into several
pieces of land, and leashed out to individual farmers
for milk production. Within the dairy park, housing and
other facilities are already in place, and some parks
have everything ranging from supply of semen for highquality breeding, good animal feed, to stringent disease
prevention and control measures, centrally organized.
This approach allows management to carefully regulate
the quality grade of raw milk production. Milking is
closely supervised, and the amount of milk produced
by each cow is registered. Research shows that milk
productivity and quality are higher at these dairy parks,
since farmers often receive training in farm
management, animal husbandry, and best feed practices.
Mechanized milking and refrigerated storage reduce
risk of contamination and waste. Due to its higher milk
quality, raw milk is often sold at a higher price than
outside the park (IFC, 2004). According to BODC (2007),
most of these so-called dairy parks are found in Hebei
and Shandong province.
Case-example: Mengniu's value chain
To secure a steady supply of high-quality raw milk, Mengniu
has contracted a large number of dairy farmers to supply
their milk through third-party collection centers to the
processing company. The collection station usually consists
of a central milking barn which is surrounded by several
small cow barns and feeding yard complexes with attached
residential units for the farmer and family. The cow barn
and residential units in the complex are owned by the
individual farmers, who must purchase them. The farmers
must also supply their own cows and forage. Mengniu
assists farmers in obtaining loans from local banks. The
typical collection center/farm complex has 40 farmers and
their families, and the average farmer has two to ten cows.
All manure is collected and sold to the farmers for fertilizer.
Dairy farmers get paid in cash after each milking, based on
the quantity of milk produced. Mengniu has supervisors in
place to check the quality of raw milk. Afterwards raw milk
is transported in sterilized tank trucks to one of Mengniu's
processing plants. While milk truck transfer operators own
their own trucks; they are also contracted to Mengniu. After
each load, the trucks are sterilized at the plant's sterilization
center. Today, Mengniu has around 3,000 collection centers
under contract in China; over half of them are located in
Inner Mongolia. The supply chain consists of circa 500,000
dairy cows owned by 300,000 small, independent farmers
in Inner Mongolia and neighboring provinces, with an
average of 1.67 cows per farmer (International Finance
Corporation, 2006).
This case-example shows how Mengniu secures (a part of)
her raw milk supply through backward integration. It should
be mentioned that while Mengniu contracts independent
operators to build and operate collection stations, its rival
Yili owns and operates these stations itself. It has further
been reported that within the Hohhot region, Yili has around
300 collection stations in place (Webber and Wang, 2003).
5.3 Farmers & processors
Within China's dairy industry, individual farmers are linked
to dairy processors through contracts. These contracts often
have a time-span of 5 years, and stipulate amongst others
that farmers supply milk to a specific processing company.
Thus, milk cannot be sold to other dairy processors, which
prevents competitors from expanding into company's supply
areas. In turn, the processor agrees to purchase milk
produced by farmers at a minimum price. Farmers receive
a higher price for higher quality milk. In addition to some
price security, farmers get access to capital for herd
expansion, technical advice, and milk markets (Webber and
Wang, 2003; Fuller et al, 2005).
19
Chapter 6 Dairy processing
The domestic dairy processing sector is also heavily
characterized by many small-scale, fragmented dairy
manufacturers. From the late 1990s, the country went from
around 700 dairy processors, to more than 1,600 companies
in 2004 (Schultz, 2006). That same year, the top three major
dairy companies were responsible for over 42% of total
national sales, which is up 34% from 2003. Consolidation
of the market was the result of increased price wars,
extension of nation-wide distribution networks, and further
consolidation of raw milk resources of leading dairy
manufacturers aim to secure a steady supply of raw milk
(Euromonitor International, 2006). Consultancy firm
McKinsey (2006) expects that by 2010 more than half of
China's 1,600 domestic dairy manufacturers will have
disappeared (Cheung and Grant, 2006).
6.1 Major dairy processors
Major domestic players can be divided into two groups,
namely resource-based firms and market-oriented
companies. Resource-based firms are represented by Yili
and Mengniu from Inner Mongolia, Wandashan from
Heilongjiang, and Sanlu from Hebei. Examples of the marketoriented group include Bright Dairy from Shanghai and
Sanyuan from Beijing. The resource-based firms are mostly
found in the Northeast region, whereas the market-oriented
companies are located in suburban areas, close to major
consumer markets. However, the difference between both
groups is becoming less distinctive with resource-based
companies moving into major consuming regions, and
market-oriented enterprises establishing production bases
in raw milk production regions (Bean et al, 2006; Lou, 2006).
The top four companies clearly stand out of the crowd, with
Yili and Mengniu, both companies from Inner Mongolia
vying for the country's number one position. Mengniu,
established in 1999, is a relatively newcomer which has
shown impressive growth. Some sources even argue that
Mengniu has overtaken Yili's position as the number one
milk selling company. In 2005, Yili signed an agreement
which made the company an official sponsor for the 2008
Beijing Olympic Games. Mengniu has sponsored a popular
singing competition program on television which goes by
the name of "Mengniu Yoghurt Super Girl Contest". Sanlu
from Shijiazhuang ranks third. Mid 2006, Auckland-based
dairy enterprise Fonterra bought a large stake of dairy giant
Sanlu. This former Chinese state-owned company has a
broad set of business activities ranging from raising dairy
cows, to processing, packaging, and researching milk. Bright
Dairy has tumbled down from its number one spot, losing
market share as a result of disappointing sales and a quality
incident that damaged its reputation (Patton, 2006). In
comparison, Dutch dairy giants Friesland Foods and Campina
showed revenues of respectively RMB 36.8 and RMB 36.5
billion in 2005 (www.fcdf.nl/ and www.campina.com; 2007).
Table M: Major dairy processors in China, 2005
No
1
2
3
4
5
6
7
8
9
10
Company
Inner Mongolia Yili
Inner Mongolia Mengniu
Shijiazhuang Sanlu
Shanghai Bright Dairy
Shuangcheng Nestle
Jinan Jiabao
Xian Yinqiao
Shanxi Gucheng
Heilongjiang Wandason
Mead Johnson Guangzhou
Revenue (mln RMB)
11,765
10,825
7,454
5,454
2,700
1,908
1,563
1,534
1,500
1,500
Processing capacity (MT/day)
8,000
8,000
3,850
5,450
1,500
1,500
1,300
1,000
2,000
N.A.
Source: Lou (2006); China Dairy Yearbook (2006)
Contact details of major dairy processors
1) Inner Mongolia Yili Industrial Group Co., Ltd
: Share enterprise
Ownership
: #8 Jin Si Dao, Jin Chuan Development Area,
Address
Huhehaote City, China
Postcode
: 010080
Telephone
: +86-471-3388888
: +86-471-3385666
Fax
Website
: http://www.yili.com
Main products : Liquid milk, ice cream, milk powder, and
raw milk
20
7) Xi'an Yinqiao
: Private enterprise
Ownership
: #99 Yinqiao Street, Economic Development
Address
Zone, Lintong, Xi'an
: 710600
Postcode
Telephone
: +86-29-83886918
: +86-29-83886998
Fax
Website
: http://www.yinqiaogroup.com/php/index.php
Main products : Milk powder, liquid milk and yoghurt drinks
2) Inner Mongolia Mengniu
: Joint-stock
Ownership
: Shengle Economy Zone, Helinge'er, Hohhot,
Address
Inner Mongolia
: 011500
Postcode
: +86-471-7392222
Telephone
: +86-471-7392222
Fax
: http://www.mengniu.com.cn
Website
Main products : UHT milk, ice cream and flavoured milk
beverages
6) Jinan Jiabao
: Shared enterprise
Ownership
: #1999 Mingda Road, Jinan City, Changqing
Address
region
: 250316
Postcode
: +86-531-87999999
Telephone
: +86-531-87809999
Fax
: http://www.jiabaoruye.com.cn/
Website
Main products : Liquid milk, yoghurt, flavoured milk
beverages and milk powder
3) Shijiazhuang Sanlu
Ownership
: State-owned
Address
: #539 East Heping Road, Shijiazhuang
Postcode
: 050071
Telephone
: +86-311-7055423
Fax
: +86-311-7055423
Website
: http://www.sanlu.com
Main products : Milk powder and yoghurt
8) Shanxi Gucheng
: Shared enterprise
Ownership
Address
: Shanyin town, Shanyin County
Postcode
: 036900
: +86-349-708-2088 / 2003
Telephone
Fax
: +86-349-708-2001
Website
: http://www.china-gucheng.com/
Main products : Liquid milk, yoghurt, milk powder
4) Shanghai Bright Dairy
Ownership
: Chinese - foreign joint venture
: #578 Wuzhong Road, Shanghai
Address
Postcode
: 201103
Telephone
: +86-21-54584520
Fax
: +86-21-64655033
: http://www.brightdairy.com
Website
Main products : Fresh milk, UHT milk, fruit juice, cheese,
milk powder, and yoghurt
9) Heilongjiang Wandason (Wondersun)
Ownership
: Shared enterprise
Address
: #368 Changjiang Road Nangang region,
Heilongjiang province
Postcode
: 150090
Telephone
: +86-451-82341887
Fax
: +86-451-82343776
Website
: http://wondersun.com.cn
Main products : Liquid milk and milk powder
5) Shuangcheng Nestle
: Foreign invested
Ownership
: 3 Building, Universal Plaza, #10 Jiu Xian
Address
Qiao Rd, Chaoyang District, Beijing
: 100016
Postcode
: +86-10-84347888
Telephone
: +86-10-64389330
Fax
: http://www.nestle.com.cn/
Website
Main products : Broad range of products which includes:
Liquid milk, milk powder, chocolate, ice
cream, water, etc.
10) Mead Johnson - Guangzhou
Ownership
: Foreign-funded
Address
: Dongjixiayuan Road, Economic and
Technological Development Zone,
Guangzhou
Postcode
: 510010
Telephone
: +86-20-82219180
Fax
: +86-20-82211277
Website
: http://www.meadjohnson.com.cn
Main products : Milk powder
6.2 Ownership structure
extent companies are exactly privatized or state-controlled.
Dairy processors that want to secure raw milk sources
often need to cooperate closely with government
authorities at all levels, ranging from provincial to village
level as regional protectionism still exists. In addition,
in some situations local governments are involved with
collective farms and collection stations, as they set floor
prices for raw milk to protect dairy farmers (Lou, 2006).
Ownership structure and legal status of Chinese
companies have evolved rapidly in the past few years.
Nowadays, there are many forms that lie between private
companies and state-owned companies. The fact that
many private enterprises have links with the government,
and former-state controlled being partly privatized, has
made it rather complicated to understand as to which
21
6.3 International dairy companies
Lured by its large business potential, many international
companies have rushed into the Chinese dairy market
without access to raw milk resources and distribution
channels. Intense competition has left many companies
disillusioned. Major foreign companies active in the Chinese
dairy industry include Nestle and Danone in the liquid milk
and yogurt business, but also Nutricia, International
Nutrition, Abbott Laboratories, Mead Johnson, and Wyeth,
in the (infant) milk powder segment. Major cheese processors
with overseas investment include Bongrain Foods and
Finland Valio (China Dairy Yearbook, 2006). Many
international dairy producers have changed their strategy
for penetrating the Chinese market. It is difficult for
international producers to get a steady supply of high
quality raw milk as these sources are controlled by Chinese
enterprises. Therefore, instead of setting up self-owned
production facilities from scratch, these companies choose
to enter the Chinese market through mergers and joint
ventures. Recently, international dairy processors like
Fonterra, Arla Foods, and Danone SA have been investing
in joint ventures with some of China's largest domestic
dairy processors (Lou, 2006; BODC newsletter 2006).
6.4 Dairy products
Liquid milk and milk powder have the largest product share
in China's dairy industry as shown in the figure below. Profit
margins on these dairy products have been under large
pressure due to a rise in raw material and labor costs.
Leading dairy processors have been investing more in R&D
to capitalize on the future growth of value-added products
like high-quality milk and yoghurt.
6.5 Power balance within the dairy chain
Within China's dairy value chain, views differ on the power
balance between the various members of the chain. One
can roughly distinguish the following chain-members from
"cow to consumer": (1) farmer, (2) milk collections center,
(3) dairy processor, (4) retailer and (5) consumers. Different
from Europe with strong impact of retail on the supply side
a general idea is that mainly processors determine the
product variety on the shelves of the retailer. In other words,
the Chinese dairy market seems at present (2006/2007) a
seller's market instead of a buyer's market. Chinese
processors are in the stage of securing their input of raw
materials, i.e. raw milk. For that reason tight relations
between dairy processors and milk collection centers (in
whatever way) and/or large-scale farmers exist. From the
perspective of NABSO stakeholders, medium- and largesale farmers and milk collection centers can be seen as
major prospects. Therefore, it is essential to build up good
relationships with dairy processing firms and address the
right contacts within the company to gain access to major
dairy farms and collection centers.
In this respect some remarks about dimensions. We have
seen in paragraph 6.1 that the national Chinese dairy market
is dominated by relative "big" dairy processors. Nevertheless,
there are also mid-sized financially sound dairy processors,
operating within a province or even focusing on one city.
For example, the Harbin-based companies "Wonderful",
not corporate related to "Wandashan" (!), and "Today" are
producing liquid milk and yoghurt for mainly Harbin with
a population of approximately 10 million inhabitants.
Figure 11: Main dairy products in 2005 (based on retail sales)
Chapter 7 Trade relations
7.1 Imports
In 2005, China imported all of its dairy cattle from Australia
and New Zealand, with Australia supplying the largest share.
That year, total import volume of dairy cattle was figured
at 49.590 heads, and valued at USD 74.30 million which
showed a sharp decline compared to the import of 132,400
heads in 2004. Mid-2006, the average price of 16-month
pure Holstein cattle was USD 1,875 a head in Baotou, Inner
Mongolia, and USD 1,750 a head in Mengniu Maanshan
Modern Farm (BODC newsletter, 2006).
Total import volume of imported animal embryos was
figured at 159kg, with a value of USD 1.41 million. Australia
and Canada were the main suppliers. Imported frozen
bovine semen came from Canada, which had a volume and
value of respectively 323kg and USD 957.960 (China Dairy
Yearbook, 2006).
In 2006, total imports from the Netherlands in the field of
agriculture were figured at roughly EUR 257 million which
included animal feed valued at EUR 6 million (LEI, 2006).
Dutch whey imports to China declined from 14,909 mt to
13,861 mt in 2005 (Bean et al, 2006).
7.2 Exports
China mainly exports two kinds of dairy products namely,
fluid milk and whole fat dry milk (WFDM). USDA FAS forecasts
that China's fluid milk exports will increase 8% to 40,000
mt and WFDM exports to increase 6% to 36,000 mt due to
increased demand in markets in East and Southeast Asia.
Figure 12: Chinese imports from the Netherlands
China's fluid milk exports to Hong Kong and Macau account
for 96% of China's total fluid milk exports, and WFDM
exports to Taiwan, Hong Kong and Myanmar account for
75% of China's total WFDM exports (Bean et al, 2006).
In 2006, total exports in the field of agriculture from China
to the Netherlands have been figured at roughly EUR 515
million. Total value of exported dairy products and animal
feed -not including grains- was valued at respectively EUR
1.3 million and EUR 7.5 million (LEI, 2007).
7.3 Trade Barriers with the Netherlands
The Chinese government has currently imposed restrictions
on the import of Dutch agricultural products of animal
origin. The country has banned all animal-related products
from the Netherlands. The Chinese government stated that
these measures were a necessary means to protect public's
health.
At present, Dutch officials are still negotiating with Chinese
authorities on the resumption of the importation of animal
related products. All necessary formalities will take time,
as Chinese officials insist on implementing their own risk
assessments.
For more information about the present situation, we advise
our stakeholders to double check actual news on our web
site www.hollandinchina.org and/or contact the Agricultural
Bureau in Beijing or NABSO in Harbin in the People's Republic
of China.
(EUR 1,000)
Source: Euromonitor International (2006)
Source: LEI (2007)
22
23
Figure 13: Chinese agriculture exports to the Netherlands
(EUR 1,000)
Chapter 8 Summary & Conclusions
This chapter gives an overview of the major findings in 8.1
followed by concluding recommendations in 8.2. In some
occasions specific recommendations will be addressed
directly to particular stakeholders.
8.1 Summary
Source: LEI (2007)
24
1. China has the ambition to increase her annual milk
production from 29 billion kg in 2005 to 38 billion kg raw
milk in 2010.
2. The number of milk cows is expected to increase from
12 million in 2005 to 18 million in 2010.
3. Main production areas in China can be found in the
Northeast, i.e. Inner Mongolia, Heilongjiang and Hebei.
Next to these three provinces Shandong (mid East) and
Xinjiang (West) are important milk producing areas. All five
provinces together are producing 60% of total Chinese raw
milk.
4. Dairy processors, at present leading in the value chain
"from cow to consumer", are price fighting their market
shares.
5. The central government in Beijing subsidizes herd
improvement. Alta Genetics inc. and CRC Holding are two
out of the eight appointed foreign companies to supply
semen and embryos.
6. In 2006 the World Bank approved a USD 200 million for
(a) improving living standards of farmers, (b) demonstrating
new technologies and (c) environmental protection. The
Heilongjiang project of the World Bank, running to 2011,
covers (1) dairy cow production, (2) dairy cattle improvement,
(3) environmental protection and (4) project management
support.
7. China is the second largest producer of animal feed in
the world with an output of 3.9 million metric tons. Despite
the relative small part of 1.3 million, dairy feed is expected
to show a high growth in both relative and absolute terms
and a more industrial based- rather than backyard
production.
8. The supply side of raw milk is highly fragmented. It is
estimated that 80% of the total output comes from small
private households. The other 20% is generated by largescale private- & state-owned farms.
9. Collection stations, sometimes called MCCs, i.e. milk
collections centers, bridge the milk-output of farmers to
processors. They can be independent or dependant.
Dependant refers to their relation with either a dairy village
or a dairy park (or dairy garden).
10. Dairy processors are securing the supply of raw milk
among others through long-term contracts with farmers.
11. The number of domestic dairy processors is expected
to decrease dramatically due to further consolidation.
12. The top five dairy processors in China, based on revenues
and estimated capacity, are Yili, Mengniu, Sanlu, Shanghai
Bright and Swiss Nestle.
13. Due to the current uncertain supply of high-quality raw
milk, international dairy processors are entering China
through mergers and/or joint ventures.
14. Besides the main dairy products liquid milk and milk
powder, there is a tendency to investigate (higher) valueadding products like high-quality milk and yoghurt. Despite
the infant stage of the cheese market some processors are
having a cheese-line.
15. Dairy processors are currently seen as main influencers
within the China Dairy Chain. The terms small, mediumsized and big for dairy processors should be seen from a
Chinese perspective
16. China imported in 2006 from the Netherlands agricultural
products for about EUR 257 million, whereas it exported
to the Netherlands for about EUR 515 million.
17. China imposed import restrictions on agricultural
products from the Netherlands. Dutch officials are
negotiating with Chinese authorities to solve the underlying
issues
8.2 Conclusions
1. High ambition of China to increase milk production creates
opportunities for all stakeholders. Based on company
profiles, NABSO Harbin is promoting the Dutch offerings
in both individual contacts as well as during trade fairs
and/or seminars.
2. Increased number of dairy cows focuses initially on semen,
embryos, followed by other suppliers.
3. Stakeholders are recommended to focus their activities
on the Northeast Provinces.
4. Price fighting will reinforce a shake-out of dairy processors.
Increased demand for dairy products might counter-force
this process by new entrants. Increased discretionary income
of Chinese consumers creates demand for higher adding
valued products stimulating demand by farmer, milk
collection center and processor for e.g. quality-enhancing
technology and training.
5. Together with the Agricultural Bureau in Beijing, NABSO
Harbin keeps a close watch on developments of Chinese
subsidies and informs her stakeholders accordingly.
6. NABSO Harbin monitors the World Bank project and
informs her stakeholders in case new developments occur.
7. Feed-related stakeholders are recommended to formulate
their strategies in order to be stand-by for increased feed
market. Next to feed (additives) the need for feeding
equipment and nutritional information will increase.
8. Stakeholders are recommended to focus on large-scale
private-owned farms rather than large-scale state-owned
farms because of the relative faster decision-making
processes within Chinese private companies.
9. Both independent and dependant milk collection centers
are interesting target groups for Dutch stakeholders. Field
study by both NABSO Harbin as well as the relevant
stakeholders should determine which specific ones in the
Northeast pat of China are interesting to approach.
10. Relation between processor and farm confirms the
importance for Dutch stakeholders to stay in touch with
the processors. In case assistance needed by either the
Agricultural Bureau in Beijing or NABSO Harbin, stakeholders
25
are invited to contact us.
11. Shake-out of processors emphasizes the necessity of
selecting carefully the processor.
12. Relevant stakeholders are recommended to scan the
web sites of (a) the major dairy farms mentioned in
paragraph 5.1 and (b) major dairy processors in paragraph
6.1. Based on own product-offering, manpower and
resources available, a plan-of-approach can be formulated.
13. What counts for international dairy processors entering
the Chinese marker, counts for all our Dutch stakeholders
as well. A well-involved agent, distributor or wholesaler
can ease the process of entering the Chinese market. This
is always true, but sometimes forgotten.
14. Dutch cheese-related stakeholders will be informed by
NABSO Harbin in case developments will occur. Specific
individual questions are welcome.
15. Stakeholders are recommended to consider so-called
mid-sized dairy companies as well. Rationale is that the
whole world is looking at the top-10 in China and neglecting
the more accessible mid-sized dairy companies.
16. FYI.
17. Relevant stakeholders are recommended to doublecheck the web sites of the Dutch Ministry of Agriculture
and mentioned www.hollandinchina.org for actualities
regarding import-restrictions for Dutch agricultural products.
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27
I would like to thank the following persons:
- Baudoin, Erik - Chief Representative, Netherlands
Agribusiness Support Office;
- Choo, Mei Leng - Administrative Assistant, ANFQ office
Beijing.
- Cortenbach, Jan - Export manager, Koudijs Feed, and Chief
Technical Officer, De Heus;
- Dou, Ming - Managing Director, Beijing Orient Dairy
Consultants Ltd;
- Duijn, Henk van - Counsellor for ANFQ office Beijing;
- Hsueh, Fan - Senior Administrative assistant, ANFQ office
Beijing;
- Hu, Dinghuan - Professor, Institute of Agricultural Economics
and Development, and Chinese Academy of Agricultural
Sciences;
- Nuytens, Gabrielle - Attaché for ANFQ office Beijing;
- Pan, Chenjun - Senior Industry Analyst, Rabobank office
Beijing;
- Wang, Yongfeng - Senior Agricultural Officer, ANFQ office
Beijing;
- Zhang, Xiao-Yong - Marketing Researcher, LEI (Agricultural
Economics Research Institute).
Embassy of the Kingdom of the Netherlands in Beijing
Agriculture, Nature and Food Quality Department
Address : 4, Liangmahe Nanlu Road
Beijing 100600, P.R. China
Telephone : +86.10. 8532 0260
Fax
: +86.10. 8532 0303
Website : www.nlpekagr.com
Email
: [email protected]
Netherlands Agribusiness Support Office in Harbin
Address : Room E, 14F, Dikang-Caifu Building Zhongshan
Road 162-1, Xiangfang District
Harbin 150040 Heilongjiang, P.R. China
Telephone : +86 (0) 451 55500240
Fax
: +86 (0) 451 55500290
Website : www.hollandinchina.org
Email
: [email protected]
Consulate General of the Kingdom of the Netherlands
in Hong Kong Agriculture, Nature and Food Quality
Department
Address : Suite 5702, 57th Floor, Cheung Kong Center
2 Queen's Road Central, Hong Kong
Telephone : +852.252448187/88
: +852.252449419
Fax
Website : www.nlpekagr.com
: [email protected]
Email
Consulate General of the Kingdom of the Netherlands
in Shanghai Agriculture, Nature and Food Quality
Department
Address : 4/F East Tower, Sun Plaza 88
Xianxia Road, Changning District
Telephone : +86.21.62099076
: +86.21.62789722
Fax
Website : www.nlpekagr.com
: [email protected]
Emai
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