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Review & Outlook
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Brief Analysis of China¡¯s Dairy Industry
1. Raw Milk Production Cannot Meet the Demand
In China more and more people start drinking the dairy milk and this trend is gradually expanding from urban areas to the rural areas. The consumption of dairy milk has being continually increasing.
According to the industry specialists, the sales of dairy products increase about 30% each year and the number of dairy cattle increases about 10% each year in the past 2 years. At the present, the estimated total inventory of dairy cattle in China is about 6 million head and only about 2 million of them are high quality breeds with relatively higher yield. It is expected that China needs to have an inventory of 10 million head of dairy cows to produce sufficient raw milk to meet the demand of consumption. Because of the biological processing on producing dairy cattle it will take a long time for the China to achieve such inventory. In near future, the shortage of raw milk supply will be the bottleneck for the development of the dairy industry in China.
2. More Dairy Processing Plants are Built
Because of the large gap between supply and demand many companies and investors see the opportunity on processing milk. Since the beginning of 2002, all the major existing dairy processors have expanded the processing capacities significantly and some new companies also set up many new processing facilities. Most this new facilities have a capacity of processing 400-500 tons of raw milk each day. Governments at different levels have also provided strong supports for the dairy processing industry. It is reported that the National Planning Commission has proved 14 special loan projects with the total investment of 2.19 billion RMB on dairy processing in the past 12-15 months. The total processing capacity of those 14 projects is about 1.74 million tons. The Ministry of Science and Technology invested 405 million RMB on dairy processing during the same period.
3. Prices of Raw Milk and Dairy Cows are Increasing
The rapidly increasing processing capacity has stretched the gap between the supply and demand of raw milk. The prices for raw milk and dairy cow have increased significantly. It is estimated that the price of raw milk has increased more than 20% in the past 6-9 months. In northern Shanxi province, the price of raw milk at the farm gate has increased from 1.4 RMB per kg to 1.8 RMB per kg in 3 months.
The price of dairy cows has also increased rapidly. In Hebei, the newborn dairy cow has a price of 3000 RMB, the market price for the production cow is about 10000 RMB per head and the high yield dairy cow could be sold at 20000 RMB per head. In Shuezhou of Shangxi, the newly born cow has a price of 5500 RMB, which is higher than the price for a production cow at 2 years ago. According to the information from the Ministry of Agriculture, the total import dairy cattle were 12700 head in 2002, which was more than the total importation of cattle for the previous 5-7 years.
4. Quality of Dairy Cows is Decreasing
The higher prices for dairy cows and dairy milk have attracted so many small farmers to rush in the dairy cow raising to produce raw milk and calves. On the other hand, there are limited high quality animals available in the markets so many poor quality diary cows/calves, low-yield cows or cull cows are traded in the markets and raised by those small farmers. In addition to that, the poor management and lack of good feed and experience on those small farms have made the things even worse ¨C low productivity. The average milk yield per dairy cow in Beijing area has been decreasing in past two yeas from 7000 kg to 5000 kg per cow per year.
It will take another 4-6 years for the China¡¯s dairy industry to achieve a new stage with the improved management, improved productivity, improved herd quality and the supply of consistent quality of dairy products. The production of raw milk will be significantly increased and the shortage of raw milk supply will be significantly improved. Some large dairy processing companies will continually grow and become major players in the industry while many existing small processors will be bought out or closed off because of poor management and low efficiency.
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