Dairy Products China News Report 2016 - Analysis, Technologies & Forecasts - Research and Markets

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Nov 04, 2016, 03:10 ET

DUBLIN, November 4, 2016 /PRNewswire/ --

Research and Markets has announced the addition of the "Dairy Products China News" report to their offering.

Fresh Milk, A Market Opportunity

On 4 September, the 5th Cross-Strait Fresh Milk Development Forum was held in Fuzhou City, Fujian Province. During this event, the "Circle of Friends" for the China Quality Milk Programme was jointly established by 20+ dairy companies (including New Hope Dairy, Changfu Dairy, Bright Dairy, Beijing Sanyuan, Huishan Dairy, Wondersun Dairy, NanJing Weigang Dairy, Kunming Xuelan Dairy, Jinan Jiabao Dairy, Henan Huahuaniu Group Dairy, Yantang Milk, Fengxing Milk, Jiangxi Sunshine, Guizhou Haoyiduo Dairy, Xuzhou Lujian Dairy, Tianyou Dairy). This aimed to promote the programme's implementation and speed the development of the fresh milk segment ("Circle of Friends" is an imitation of WeChat's function, "Moment", which is also known as "Circle of Friends".)

For a long period take-up of the programme has been called for by the domestic dairy industry. However, some large dairy companies have held back from full implementation. The programme mainly consists of: Labelling products as "Quality Milk" Dairy farming technology upgrade Supervision of standardisation of processing

The accreditation is mainly targeted at fresh milk, which should have characteristics such as "near to raw milk sources", "short-distance refrigerated transportation" and "instant consumption". Consumers are expected to easily see whether the milks are "quality" through the labelling. "The programme will help rebuild confidence in domestic milk products and ease the imbalance of profit distribution in the industry," commented a trade source.

Ever since the melamine scandal, China's dairy market has endured periods of rapid price drops or increases. This year is "the hardest year for the domestic dairy business," stated Gao Hongbin, Director of the Dairy Association of China (DAC): "In March, 51% of companies made a loss. In H2, this proportion is still growing."

There are two fundamental factors behind the flat domestic dairy market:

- Weak demand, causing slower growth in consumption and oversupply.

According to the National Bureau of Statistics, local sales of liquid milk (fresh + UHT, including imports) stood at 27.39 million tonnes in 2015, up by 3.6%

- this compared with averages of 5.1% in 2011-2015 and 11.1% in 2006-2010.

On 16 August, the DAC issued the China Dairy Industry Quality Report (2016), produced with support from China's National Health and Family Planning Commission, General Administration of Quality Supervision, Inspection and Quarantine and the China Food and Drug Administration. In 2015, national milk production (incl. goat milk) reportedly hit 38.70 million tonnes, whilst consumption of dairy products was 29.58 million tonnes. According to the 2015 China Rural Statistical Yearbook, the country's dairy herd stood at 15.07 million head in the same year.

- The threat posed by foreign dairy products: China imported 1.79 million tonnes of dairy products in 2015, equal to about 11 million tonnes of milk (based on 1:8 ratio between powders and raw milk); in January-June, imports of milk powder (incl. infant formula) hit 407,800 tonnes (= 3.26 million tonnes of raw milk), up by 18.6% YoY; liquid milk imports were up by 77.55% to 314,000 tonnes.

"Developing the fresh milk segment is a key means of surviving the sluggish market, depending on stressing the original milk's quality," said Gao Hongbin, implying its greater nutritional properties compared with long-life milk. Many local processors recombine imported powder to produce UHT milk as the international price is nearly 1/2 the domestic one. According to statistics from the International Farm Comparison Network (IFCN), the theoretical world milk price was about RMB1.44/kg in May, compared with RMB3.46/kg from China's 10 leading milk producing regions. However, going from raw milk to powder and then to reconstituted milk means 2 high-temperature sterilisations which cause huge nutritional losses (local processing specialists cite 60% of active protein being lost in the initial spray-drying).

According to the Notice to Enhance Administration on Liquid Milk Production and Sales (released by the General Office of the State Council in September 2005,implemented on October 15, 2005), if reconstituted milk is used for producing UHT milk, manufacturers should note this on the label, and make clear the proportion used. The Identification of Reconstituted Milk in Fresh Milk and UHT Milk issued in April also stresses increased inspection of reconstituted milk.

However few local dairy products using reconstituted milk are declared as such on-pack, an issue which clearly needs tackling. This represents an opportunity for fresh milk. Practice of the quality milk programme is expected to push dairy processors to purchase higher quality raw milk, and dairy farmers to increase their efforts to produce such a product.

"The price of raw milk will increase materially in early 2017," stated dairy analyst Song Liang; "We expect fresh dairy products including fresh milk, yoghurt and ice cream will grow also. It is necessary to encourage companies to develop fresh milk to make a turnaround."

Taiwan provides a good example of an industry countering use of imported milk powder with fresh milk: "30 years ago, we started promoting labelling for quality milk, and focused on developing fresh milk. Now 98%+ of local farm milk is used for producing fresh milk," stated Shi Zongxiong, Honorary Director of the Dairy Association of Taiwan.

In mainland China, this percentage is very low. According to the China Dairy Industry Quality Report (2016), fresh milk accounts for 10% of the liquid milk market compared with 80%+ in the US and Australia.

"We are making a 5-year plan for the quality milk programme, a move intended to increase the consumption of quality dairy products (meaning fresh milk) to 30%, and to 90%+ within 10 years," claimed Wang Jiaqi, DAC's Vice Director.

Executive Summary:

On 23 August, Dali announced to launch soymilk next year; 2 days later, Vitasoy released its new coconut juice "Vitakaka". In reality, many plant protein beverage manufacturers have launched many new products. All this is strong demonstration about the market potential.

On 4 September, at the 5th Cross-Strait Fresh Milk Development Forum in Fujian, the "Circle of Friends" for the China Quality Milk Programme was established by 20+ dairy companies.

On 30 August, the CNCA announced to enhance supervision on Australian fresh milk companies. It seems that the manufacturers are facing risk of being suspended for registration in China.

On 24 August, Ausnutria announced the takeover of Australian company Nutrition Care, a notable step in its diversification.

In H1, Yili grew both sales and net profit, whereas Mengniu recorded a fall in net profit, achieving just 1/3 of the figure posted by Yili. In the future, growth will be centre on the 3rd-/4th-tier cities, where both companies are already active.

On 13 September, local milk tea manufacturer Xiangpiaopiao launched the first "pure milk pure tea" on the market, a move intended to transform itself into a "healthier" supplier.

On 19 September, Beingmate announced it had received government approval for its establishment of an infant formula plant with Fonterra. This is expected to strengthen their partnership and help Beingmate deal with the changes brought about by the Chinese infant formula registration policy.

In September, the price of raw milk continued an upward trend, thanks to the traditional sales peak and decreased milk supply.

On 22 September, the ground-breaking ceremony for a 10,000 cow farm jointly constructed by Qianjin Animal Husbandry and Jule Group was held.

In September, Bright Dairy, following the launch of premium-marketed "Momchilovtsi" yoghurt, started marketing another such yoghurt "Zhi Da". This differentiated product is positioned as healthy and snack yoghurt and is targeted at South China.

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