Abstract:In the past, dairy farming in mainland China was mainly based on small-scale retail farming, which was difficult to supervise, and the pollution problems and related safety problems in the industry were serious. With the continuous improvement of the supervision of the dairy farming industry and the safety awareness of dairy products in the mainland in recent years, the scale of dairy farming in the mainland has been continuously improved, and a large number of small-scale retail households have been banned, which has made the number of dairy cows in the mainland continue to decline from 2015 to 2019. With the deepening of the large-scale process of the industry, driven by downstream demand, the number of dairy cows in mainland China has gradually rebounded. Data shows that the number of dairy cows in mainland China will be about 6.5 million in 2023, a year-on-year increase of 1.6%.
1. Definitions and Classification
Dairy cows are a breed of cattle that are specially bred for high milk production and are highly selected and bred. At present, the dairy cows in the mainland are mainly black and white cows, and this breed has been introduced since 1980, which has strong adaptability, wide distribution, high milk yield and resistance to rough feeding. Dairy cows can be mainly divided into two categories: dairy breeds and dairy meat breeds, of which dairy breeds mainly include Holstein cows, Jersey cows, Erxia cattle, Gensai cattle, and dairy shorthorn cattle; The breeds of milk and meat include Swiss brown cattle, Danish red cattle, Simmental cattle (German and Chinese) and China's Sanhe cattle, grassland red cattle, Xinjiang brown cattle, Horqin cattle, etc.
Second, the breeding model
There are three main ways of dairy farming in mainland China: grassland grazing, mixed family farming and animal husbandry, and intensive large-scale farming. Among them, grassland grazing methods are mainly in the western, northeastern and southern grassland areas, with low production cost but limited scale due to the great impact of natural environment, grassland resources and climate change. The mixed mode of family farming and pastoralism is mainly in agricultural areas or semi-agricultural and semi-pastoral areas, and farmers use their own or local resources to achieve a balance between self-cultivation and breeding, but the land and scale are relatively small. Intensive large-scale farming methods are all over the country, especially since 2008, with rapid development, to meet market demand, ensure quality safety and improve production efficiency as the goal, the need for high input, high intensity, high output of breeding methods, mainly adopted by large and medium-sized farms, need to invest a lot of money, machinery and equipment and advanced technology and management methods.
3. Industry policy
At the policy level, dairy farming and other animal husbandry-related environmental protection policies are becoming more and more stringent, and the carbon neutrality goal is written into the government work report, which makes clearer provisions on the feeding methods of dairy cows, the comprehensive utilization of waste and the harmless treatment of pollutants, which requires the ranch to formulate and implement a more reasonable, systematic and effective green breeding plan to minimize the negative impact on the environment. Small-scale farms are difficult to meet environmental requirements due to loose management and high environmental protection costs. At the same time, the policy of large-scale development of dairy farming is becoming more and more centralized and specific, and a number of policies and regulations have mentioned advocating the construction of a circular development mechanism for planting and breeding, and promoting a standardized, large-scale, and intensive breeding model. A series of policies have directly impacted the breeding model of "planting and breeding separation" of retail and small-scale farmers, and accelerated the large-scale process of the dairy farming industry.
Fourth, industry risks
1. Risk of raw material price fluctuations
In general, the risk of raw materials for dairy farming mainly comes from the feed industry. Feed costs account for 65%-75% of a farmer's cost of selling raw milk. The increase in feed prices will immediately affect the increase in the cost of raw milk, leading to a decline in economic efficiency. Within a certain range of milk production, the higher the milk volume, the lower the cost of feed per unit of milk production. However, except for a few suburbs of large and medium-sized cities on the mainland, the milk production of cows is generally not high. As a result, the cost of feed per kilogram of raw milk is relatively high. Cow margins have decreased, feed prices have risen, and raw milk purchase prices have remained the same. Rising feed prices will increase the proportion of feed costs in the purchase price of raw milk. After the increase in feed costs, although dairy companies have increased the purchase price of raw milk, the profits obtained by dairy farmers have still declined, and the impact of different breeding models has declined. Among them, the decline of large-scale cattle farms was the smallest, the decline of milk stations and free-range farmers was the largest, and the decline of breeding communities was in the middle.
2. Market competition risk
At present, there are a large number of enterprises in the dairy farming industry in mainland China, in addition to large-scale dairy farming enterprises and many retail farmers, due to the fact that in recent years, dairy industry enterprises have attached importance to the control of upstream raw materials, strengthened the integration of the industrial chain, and intensified the market competition in the industry. If other enterprises rely on their financial strength to seize the market by means of price reduction and acquisition, or new entrants use low-price marketing and vicious competition to seize the market, it will have an adverse impact on the operation and profitability of the enterprise.
3. Risks of policy and institutional changes
The state can change its policies in different periods according to changes in the macro environment, which will inevitably affect the economic interests of enterprises. Therefore, due to the existence and adjustment of policies, there will be contradictions in economic interests between the state and enterprises, resulting in policy risks. Institutional risk refers to the risk brought about by the government department's forcible overtaking of enterprise mergers and acquisitions, deviating from market principles, making it difficult for mergers and acquisitions to achieve the expected results.
At present, the dairy farming industry is an industry that the mainland focuses on encouraging and supporting its development. The mainland government has given strong support to the industries in which enterprises operate through the formulation of industrial policies and the promulgation of laws and regulations, ranging from tax exemptions, investment incentives, R&D support, talent training to intellectual property protection. The sustained and rapid development of enterprises is closely related to factors such as the national macroeconomic environment, industrial policies, and changes in the industry competition pattern.
4. Entry and exit risk
There are certain barriers to the entry of dairy farming, and secondly, the risk of dairy farming exit is mainly concentrated in the sunk cost of upfront investment. At present, if an original enterprise wants to withdraw from the dairy farming industry, the best way to exit is to sell the company's business, but it takes a long time to sell the company's business, and there is a problem about whether dairy farming will continue during this period. If the original dairy farming is abandoned during the sale period, it is equivalent to just selling equipment and resources, etc., and the value of the relevant projects in the industry will be greatly discounted, and there is a general risk in the breeding industry if the breeding continues to be cultivated during the sale period. Therefore, there is a high risk of entry and exit in dairy farming.
Fifth, the industrial chain
From the perspective of the industry chain, the dairy industry chain is long, and the upstream is the supply of dairy cow breeding, feed and breeding equipment, of which feed is the most important part, accounting for more than seventy percent of the cost of dairy farming. As the world's largest feed producer, the mainland has sufficient feed supply, which provides sufficient guarantee for the development of the dairy industry. From the downstream point of view, the finished products of dairy cows are mainly raw milk, the direct downstream is dairy products and food processing enterprises, and the terminal downstream is all kinds of consumers.
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