Overcapacity has exceeded 2 million tons, and it is imminent to reduce production capacity Experts suggest that the dairy industry learn from the pig industry

Every reporter: Chen Qing Every editor: Liang Xiao

Attentive consumers may find that dairy products are becoming more and more varied across various sales channels, and are even catching up with new teas.

Behind the variety of patterns, the dairy industry is becoming more and more "rolling". On July 3, the 15th Dairy Conference of China Dairy Association was held in Wuhan. At the meeting, Yu Kangzhen, counselor of the State Council and former vice minister of the Ministry of Agriculture and Rural Affairs, said bluntly that the mainland dairy industry is facing the biggest challenge since 2008.

Under the predicament of the industry, enterprises are actively trying to survive. At the meeting on July 3, some dairy companies mentioned that they should develop dairy products that are more suitable for consumer needs, including various flavored dairy products or dairy products suitable for people who are losing weight, and milk can also "collide" with coffee, tea and other categories; There are also regional dairy companies that share the experience of the company and Deyun Club.

Of course, in the view of many industry insiders, the most critical thing at present is to solve the problem of imbalance between supply and demand. In terms of reducing capacity, some experts suggest that the dairy industry can learn from the pig industry.

"More than 80% of the industry's losses"

As a series of activities of the 15th Dairy Conference, on the morning of July 3, the 2024 China Dairy Industry Development Strategy Seminar hosted by the China Dairy Association was successfully held in Wuhan.

At this meeting, overcapacity is still a topic that cannot be avoided. At the meeting, Yu Kangzhen, counselor of the State Council and former vice minister of the Ministry of Agriculture and Rural Affairs, introduced that the mainland dairy industry is facing the biggest challenges since 2008, including the weak dairy consumption market and the oversupply of raw milk.

According to the National Bureau of Statistics, the mainland's milk output in 2023 will be 41.97 million tons, an increase of 6.7%. The Ministry of Agriculture and Rural Affairs' "14th Five-Year Plan for Improving the Competitiveness of the Dairy Industry" puts forward the goal of "by 2025, the national milk output will reach 41 million tons". In other words, the mainland dairy industry achieved this goal two years ahead of schedule.

The scene of the 15th Dairy Conference

Image source: Photo by reporter Chen Qing

Expanding too quickly has led to overcapacity in the industry. At the meeting on July 3, Li Shengli, chief scientist of the national dairy industry technology system, professor of China Agricultural University, and vice president of the China Dairy Association, shared a set of research data that said that the excess fresh milk in 2023 will exceed 2 million tons.

In order to digest the excess capacity, dairy companies have increased the amount of powder spraying. Li Shengli introduced that from April to May 2024, the average daily powder of fresh milk sprayed by leading dairy enterprises will reach 20,000 tons, accounting for about 25% of the milk collection.

Powder spraying is actually a loss-making business for dairy companies. Li Shengli introduced that a ton of milk powder can only be sold for 15,000 yuan to 19,000 yuan, but the cost of spraying a ton of powder is about 35,000 yuan, so it costs more than 10,000 yuan to sell a ton of milk powder.

A person from a dairy company who participated in the meeting said to reporters that the shelf life of fresh milk is generally 18 months to 24 months. There are too many inventories for domestic consumption, and if the inventory continues to be backlogged, it will be destroyed when the time comes.

Raw milk prices have also continued to fall amid high inventories. According to the 2023 annual report of Australasia Group (HK02425), according to the Ministry of Agriculture and Rural Affairs, the price of raw milk in December 2023 was about 11% lower than that in December 2022, which was the largest year-on-year decline in raw milk prices in more than a decade.

A set of data shared by Li Shengli shows that the milk price of dairy cow system monitoring in May 2024 is 3.34 yuan/kg, a year-on-year decrease of 0.55 yuan/kg (the full cost is down 0.31 yuan/kg), and the profit margin of kilogram milk is the first time that the dairy cow system has entered a negative value, and this round of adjustment cycle is more severe than 2016~2017, and the industry loss is more than 80%.

"China's dairy farming industry is in the most difficult situation in more than a decade." Australasia Group said in the financial report.

Expert advice: learn from the pig industry

The industry is in trouble, how can we tide over it? Capacity reduction was one of the initiatives highlighted at the meeting. In this regard, Li Shengli believes that the dairy industry can learn from the pig industry.

On February 29 this year, the Ministry of Agriculture and Rural Affairs issued the "Implementation Plan for the Regulation and Control of Pig Production Capacity (Revised in 2024)" to guide large-scale pig breeding enterprises to reasonably reduce production capacity. Since May, with the basic reduction of national pig production capacity in place, pig prices have continued to rise.

Li Shengli suggested that in 2024, the production capacity of dairy cows should be appropriately reduced, about 300,000 adult cows should be eliminated, and 8,000 tons of milk per day should be reduced to greatly alleviate overcapacity. At present, in the first half of 2024, it is estimated that the national capacity reduction capacity will compress nearly 4,500 tons of raw milk per day, and the capacity reduction is expected to continue for a period of time.

"It is recommended that the top 20 large farms in China can take the initiative to reduce the number of dairy cows by 15%~20%." On July 3, dairy analyst Song Liang also said in an interview with the WeChat reporter of "Daily Economic News" that in the short term, the dairy industry urgently needs to adjust the supply.

Song Liang also suggested that in the long run, the dairy industry needs to coordinate the feeding of dairy cows and the production of raw milk according to the situation of land and forage in various places. This approach is somewhat similar to quotas, which helps the industry to coordinate the use of resources and achieve a balance between supply and demand. In addition, a unified supply and demand forecasting and early warning system can also be established to promote the orderly development of the dairy farming industry by determining production by sales.

At the meeting on July 3, in response to the current predicament of the industry, a number of leading enterprises also shared their experiences. Liu Chunxi, Executive President of Yili Group, said that China's dairy industry should realize the integration of the four chains and comprehensively build an industrial innovation ecology with efficient collaboration and mutual integration. The first is to gather "new" trends and optimize the industrial chain. The second is to accumulate "new" forces and activate the innovation chain. The third is to empower "new" energy and connect the data chain. The fourth is to build a "new" foundation and build a strong talent chain.

Some dairy companies are playing with new marketing. Bright Dairy (SH600597) introduced at the performance briefing that at the beginning of this year, the company cooperated with the Shanghai Museum to launch a variety of new products and product packaging for the Year of the Dragon; It was also named the first special exhibition hall of the East Hall of the Shanghai Museum. At the same time, Bright Dairy also actively cooperates with brands within Bright Group, co-branded with many well-known brands such as White Rabbit and Zhengguanghe to launch products that are deeply loved by consumers, imprint Shanghai-style culture in products, and make the national trend in the brand.

Leading dairy companies are waiting, and regional dairy companies are also trying to break the situation. In the special event on the afternoon of July 3, Zou Yang, Secretary of the Party Committee and Chairman of Tianjin Haihe Dairy Co., Ltd., also shared the company's experience, including cross-border co-branding with Tianjin city culture such as Deyun Club. "We may not be able to compare with the giants, but we want to find a path with our own characteristics." Zou Yang said.

National Business Daily