China – what a country of contrast. From the intrigue of the emperors and the mystery of the 2,000-year-old terracotta warriors to the westernisation of youth.
From the tiny but socially important village farms to the hugely impressive and professional stock market-listed corporations such as China Modern Dairy Holdings (22 farms, 180,000 cows and counting).
From supermarkets selling mysterious-looking food (some of it still alive) on one side of the supermarket to immaculately-presented long-life milk gift packs selling for £7 (€8.75) for three litres on the other. And milk which consumers take for their dinner party hosts in the same way we’d take wine.
China, we’re told, is getting a taste for dairy products. This, of course, should come as no surprise to dairy farmers who have basked in the joys of record milk prices over the last year or so, as China bought big on the global dairy markets, and who are now witnessing their prices falling as it stands back from the market.
But the big questions now are, how long might dairy farmers be able to rely on the Chinese to set a high tone in the global market, and could it grow its industry to such an extent it could become self-sufficient and curb its massive dairy imports?
The answer to the latter question is an all-encompassing no, it can’t. It would be a categorical no were it not for the fact that it would be a mistake to ever underestimate the Chinese, especially not with the input and expertise they are getting from the Dutch, the Danes and the Kiwis, among others. Remember, when this nation wants to build something, it builds – walking The Great Wall is testimony of that.
The reality, though, is that China won’t achieve self-sufficiency anytime soon. The reason is simple – although there is a list of what China’s dairy industry has got going for it, there is a longer list of challenges (see panel).
“There is huge potential in China,” states Ian Lahiffe, Keenan’s market development manager for China. “There is no shortage of basic labour, but there is a shortage of skilled management, and the large units desperately need more people who know what they are doing with cows.
‘‘There’s little or no nutritional ration analysis, for example, and heifer and dry cow management can be neglected,” he adds. “However, the attitude up to now has been to get big and then get good. Now, the big operators are asking what they should do to get good, and better. And they will.”
Expo
The Chinese have a lot to improve upon, especially away from the large professional units and out in the village “co-operation” farms, or collective milking stations, where villagers bring their three or four cows to be milked.
These farms wouldn’t pass many food standard programmes here in the west.
However, there is a significant move away from such systems towards large farms as the government seeks to improve standards across the industry, to wipe away the legacy of the devastating melamine scandal and reduce imports.
Melamine contamination is believed to have resulted from these collective milking stations adding it before the processors picked up the milk. Winding down such village farms probably won’t take much doing either – they don’t make much money as milk quality is poor and the price is low, and young people can earn twice as much in a city factory as they do on a farm. The attraction of the big city lights is resulting in a steady migration out of the countryside.
As a result, large farms are being built in China, mainly in the rain belt in the north, by heavyweights such as GEA Farm Technologies and Asia Dairy Fabrications, which has designed more than 200 large dairies in 20 provinces over the last few years. A lot of investment for these units is coming from both internal and overseas investors, such as Fonterra. This investment is only going to increase as the Government’s desire to increase domestic production and reduce import reliance intensifies. To give an indication of the speed of progress, it was claimed that a unit for 18,000 cows (9,000 milkers, plus young stock) can be built in just six months. Currently, between 30% and 40% of China’s 36m tonne annual milk volume is coming from the large dairies, and that figure is increasing rapidly.
Consumption
Per-capita consumption of dairy is around 23kg per year, compared with 112kg in Britain and 92kg in Denmark. Total consumption for the country is around 45m tonnes. In financial terms, the Chinese dairy market is worth €25bn, and it is the fastest-growing market at 9% a year, according to Arla Foods, which has just opened its innovation centre in Beijing in conjunction with its Chinese partner, Mengniu.
The innovation centre is at the same location as the joint China-Denmark Milk Technology Cooperation Centre, which Arla has with Mengniu, and which has the purpose of supporting China with European and Danish knowledge about milk technology.
The market is the second largest after the US; it will be worth £30bn by 2017, and will easily surpass the US by 2021, it calculates.
The Chinese are, of course, big into powders, as we know – especially infant powders. There are around 16 million babies born in China every year and the maternity allowance is short, at just two months.
Working mothers are reliant on infant formula, but do not generally trust domestic product as much as imported ones – such is the legacy of the melamine scandal. Yet, these same concerned families transport their children around the city on mopeds or in the flimsiest of tuk-tuks, often going the wrong way on a roundabout or the wrong way a one-way street. On a scale of danger, getting to the shops to buy the infant formula is more dangerous than its consumption.
The Chinese are also increasingly getting a taste for long-life milk and drinking yogurt. As wealth increases, so does dairy consumption, and the view among the wealthy is that milk is associated with goodness, strength, height and affluence – hence, the retail gift packs.
Long-life milk consumption is expected to grow more rapidly than any other category between 2016 and 2021, at a rate of 36% a year. Fresh milk will grow, but there’s no advanced chilled distribution chain in China.
Cheese will be the second-biggest growth market, but the Chinese have yet to start eating substantial quantities of it. It could be argued, therefore, that there’s either no market for cheese, or a massive market, but Arla dismisses this.
“Arla is taking the view that there’s a massive market, and is investing to develop it,” says Niels Juul Mortensen, head of technology for Arla’s China business unit.
“Demand for cheese in China is growing.” Currently, the Chinese dabble with it on pizzas (Pizza Hut has 1,000 restaurants in 300 cities) and on burgers, and China manufactures some processed cheese, but not much.
“We have a white sheet of paper on cheese as we don’t know what the introduction route to the market will be,” adds Juul Mortensen. “We will be working with chefs and consumers to discover and develop new products.”
There is a possible parallel here between cheese and sausage products. A few years ago, in the Xi’an Walmart store we visited, there was just a tiny section for sausages, but now there’s a whole aisle. Western-style bakery products are also growing rapidly, and the Chinese are increasingly eating sandwiches for lunch. The growth of western food, when it strikes a chord, can be exponential.
And dairy will see such growth, he insists, as people move from rural to urban areas and increasingly eat more western diets. Urban residents eat three times as much dairy as rural residents.
Lactose intolerance will not be a barrier to consumption as other Asian countries with similar intolerance levels have consumption levels that are double China’s, he states.
The government is also driving demand: “It sees dairy as good nutrition to build strong people. Its target is for everyone to eat 500g of dairy products per day,” he says.
The reality is that it will take many years to build consumption up to that level. But the Chinese dairy industry will not have the capacity to feed people that amount from domestic production, he states. Consumption will continue to outpace production despite the growth in the industry, and China will have to import a considerable amount of its dairy requirements for the foreseeable future. In fact, Juul Mortensen believes it could be as much as half of what it needs.
“There is massive potential here,” he says. “Our investment will capitalise on it.”
What Chinese dairying has got going for it
It embraces technology.Insatiable ambition to grow.All-encompassing
self-belief.Appetite to build new, big units.Political support to improve and reduce imports.Strong, profitable milk price for good units (50p/l).Innovates at consumer level.Population increasingly consuming dairy products. What it is up against
Not a lot of its landmass is suitable for dairy.Long supply chain: 70% of milk is produced in the north, but 60% of consumption is in the south.Cows expensive to import from New Zealand/Australia.Small herd owners struggle with access to finance.Cost of feed means some cows go hungry.Reliance on expensive feed from the US (especially alfalfa at £320/t).Reliance on quality of US alfalfa crop.Lack of management skills at large herd level.Poor, unprofitable milk price for average/poor farmers (50c/l).Water shortage.Young people don’t want to farm and are migrating from rural to urban areas.Welfare standards in smaller village farms are lacking.Lack of domestic confidence in dairy products.Winding down of “collective stations” faster than growth of large units.Animal disease, such as Foot and Mouth Disease.Regulated and bureaucratic, with risk of corruption.
China – what a country of contrast. From the intrigue of the emperors and the mystery of the 2,000-year-old terracotta warriors to the westernisation of youth.
From the tiny but socially important village farms to the hugely impressive and professional stock market-listed corporations such as China Modern Dairy Holdings (22 farms, 180,000 cows and counting).
From supermarkets selling mysterious-looking food (some of it still alive) on one side of the supermarket to immaculately-presented long-life milk gift packs selling for £7 (€8.75) for three litres on the other. And milk which consumers take for their dinner party hosts in the same way we’d take wine.
China, we’re told, is getting a taste for dairy products. This, of course, should come as no surprise to dairy farmers who have basked in the joys of record milk prices over the last year or so, as China bought big on the global dairy markets, and who are now witnessing their prices falling as it stands back from the market.
But the big questions now are, how long might dairy farmers be able to rely on the Chinese to set a high tone in the global market, and could it grow its industry to such an extent it could become self-sufficient and curb its massive dairy imports?
The answer to the latter question is an all-encompassing no, it can’t. It would be a categorical no were it not for the fact that it would be a mistake to ever underestimate the Chinese, especially not with the input and expertise they are getting from the Dutch, the Danes and the Kiwis, among others. Remember, when this nation wants to build something, it builds – walking The Great Wall is testimony of that.
The reality, though, is that China won’t achieve self-sufficiency anytime soon. The reason is simple – although there is a list of what China’s dairy industry has got going for it, there is a longer list of challenges (see panel).
“There is huge potential in China,” states Ian Lahiffe, Keenan’s market development manager for China. “There is no shortage of basic labour, but there is a shortage of skilled management, and the large units desperately need more people who know what they are doing with cows.
‘‘There’s little or no nutritional ration analysis, for example, and heifer and dry cow management can be neglected,” he adds. “However, the attitude up to now has been to get big and then get good. Now, the big operators are asking what they should do to get good, and better. And they will.”
Expo
The Chinese have a lot to improve upon, especially away from the large professional units and out in the village “co-operation” farms, or collective milking stations, where villagers bring their three or four cows to be milked.
These farms wouldn’t pass many food standard programmes here in the west.
However, there is a significant move away from such systems towards large farms as the government seeks to improve standards across the industry, to wipe away the legacy of the devastating melamine scandal and reduce imports.
Melamine contamination is believed to have resulted from these collective milking stations adding it before the processors picked up the milk. Winding down such village farms probably won’t take much doing either – they don’t make much money as milk quality is poor and the price is low, and young people can earn twice as much in a city factory as they do on a farm. The attraction of the big city lights is resulting in a steady migration out of the countryside.
As a result, large farms are being built in China, mainly in the rain belt in the north, by heavyweights such as GEA Farm Technologies and Asia Dairy Fabrications, which has designed more than 200 large dairies in 20 provinces over the last few years. A lot of investment for these units is coming from both internal and overseas investors, such as Fonterra. This investment is only going to increase as the Government’s desire to increase domestic production and reduce import reliance intensifies. To give an indication of the speed of progress, it was claimed that a unit for 18,000 cows (9,000 milkers, plus young stock) can be built in just six months. Currently, between 30% and 40% of China’s 36m tonne annual milk volume is coming from the large dairies, and that figure is increasing rapidly.
Consumption
Per-capita consumption of dairy is around 23kg per year, compared with 112kg in Britain and 92kg in Denmark. Total consumption for the country is around 45m tonnes. In financial terms, the Chinese dairy market is worth €25bn, and it is the fastest-growing market at 9% a year, according to Arla Foods, which has just opened its innovation centre in Beijing in conjunction with its Chinese partner, Mengniu.
The innovation centre is at the same location as the joint China-Denmark Milk Technology Cooperation Centre, which Arla has with Mengniu, and which has the purpose of supporting China with European and Danish knowledge about milk technology.
The market is the second largest after the US; it will be worth £30bn by 2017, and will easily surpass the US by 2021, it calculates.
The Chinese are, of course, big into powders, as we know – especially infant powders. There are around 16 million babies born in China every year and the maternity allowance is short, at just two months.
Working mothers are reliant on infant formula, but do not generally trust domestic product as much as imported ones – such is the legacy of the melamine scandal. Yet, these same concerned families transport their children around the city on mopeds or in the flimsiest of tuk-tuks, often going the wrong way on a roundabout or the wrong way a one-way street. On a scale of danger, getting to the shops to buy the infant formula is more dangerous than its consumption.
The Chinese are also increasingly getting a taste for long-life milk and drinking yogurt. As wealth increases, so does dairy consumption, and the view among the wealthy is that milk is associated with goodness, strength, height and affluence – hence, the retail gift packs.
Long-life milk consumption is expected to grow more rapidly than any other category between 2016 and 2021, at a rate of 36% a year. Fresh milk will grow, but there’s no advanced chilled distribution chain in China.
Cheese will be the second-biggest growth market, but the Chinese have yet to start eating substantial quantities of it. It could be argued, therefore, that there’s either no market for cheese, or a massive market, but Arla dismisses this.
“Arla is taking the view that there’s a massive market, and is investing to develop it,” says Niels Juul Mortensen, head of technology for Arla’s China business unit.
“Demand for cheese in China is growing.” Currently, the Chinese dabble with it on pizzas (Pizza Hut has 1,000 restaurants in 300 cities) and on burgers, and China manufactures some processed cheese, but not much.
“We have a white sheet of paper on cheese as we don’t know what the introduction route to the market will be,” adds Juul Mortensen. “We will be working with chefs and consumers to discover and develop new products.”
There is a possible parallel here between cheese and sausage products. A few years ago, in the Xi’an Walmart store we visited, there was just a tiny section for sausages, but now there’s a whole aisle. Western-style bakery products are also growing rapidly, and the Chinese are increasingly eating sandwiches for lunch. The growth of western food, when it strikes a chord, can be exponential.
And dairy will see such growth, he insists, as people move from rural to urban areas and increasingly eat more western diets. Urban residents eat three times as much dairy as rural residents.
Lactose intolerance will not be a barrier to consumption as other Asian countries with similar intolerance levels have consumption levels that are double China’s, he states.
The government is also driving demand: “It sees dairy as good nutrition to build strong people. Its target is for everyone to eat 500g of dairy products per day,” he says.
The reality is that it will take many years to build consumption up to that level. But the Chinese dairy industry will not have the capacity to feed people that amount from domestic production, he states. Consumption will continue to outpace production despite the growth in the industry, and China will have to import a considerable amount of its dairy requirements for the foreseeable future. In fact, Juul Mortensen believes it could be as much as half of what it needs.
“There is massive potential here,” he says. “Our investment will capitalise on it.”
What Chinese dairying has got going for it
It embraces technology.Insatiable ambition to grow.All-encompassing
self-belief.Appetite to build new, big units.Political support to improve and reduce imports.Strong, profitable milk price for good units (50p/l).Innovates at consumer level.Population increasingly consuming dairy products. What it is up against
Not a lot of its landmass is suitable for dairy.Long supply chain: 70% of milk is produced in the north, but 60% of consumption is in the south.Cows expensive to import from New Zealand/Australia.Small herd owners struggle with access to finance.Cost of feed means some cows go hungry.Reliance on expensive feed from the US (especially alfalfa at £320/t).Reliance on quality of US alfalfa crop.Lack of management skills at large herd level.Poor, unprofitable milk price for average/poor farmers (50c/l).Water shortage.Young people don’t want to farm and are migrating from rural to urban areas.Welfare standards in smaller village farms are lacking.Lack of domestic confidence in dairy products.Winding down of “collective stations” faster than growth of large units.Animal disease, such as Foot and Mouth Disease.Regulated and bureaucratic, with risk of corruption. 
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