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Chinese Dairy Industry Enters New Era

2018-11-19 09:46 Monday

Over the past five years, China's domestic consumer demand for dairy products has leapfrogged from "subsistence" to "quality". Consumers have paid more attention to product quality, brand reputation, and the consumption experience.

In the wake of these developments, quality and safety level has improved within the dairy industry; dairy consumption and consumer confidence have improved. A new era of Chinese dairy is taking shape, in which market competition and rapid growth are the norm, and , the market for solid dairy products (such as cream, cheese, protein powder and protein liquid) becomes increasingly prominent.

solid milk

Dairy Industry 1.0 Era

Up until 2000, the domestic milk production in China remained low; milk consumption per capita was less than 6 kg. Dairy products were mainly composed of powdered milk, with a a small representation of liquid milk. Furthermore, bottled pasteurized milk was limited to a single flavor and mainly concentrated in first and second tier cities such as Shanghai and Beijing.

Dairy Industry 2.0 Era

After 2000, with the development of sterilized milk and packaging technology, there was a shift from milk powder to UHT sterilized milk. From 2000 to 2005, liquid milk output grew rapidly, with annual compound growth rates as as high as 53.6%. The restructuring also paved the way for the rapid development of the dairy industry, including the rise of a number of enterprises, including Yili and Mengniu, and a rise in per capita milk consumption to 36kg.

After 2008, due to increased imports and the entry of overseas producers, the Chinese liquid milk market entered a period of oversaturation.  Liquid milk growth slowed down, and fell to 6.8% in 2017.

Starting in 2014, due to changes of consumer demand, product homogeneity, and the effects of globalization, the dairy industry has undergone a dramatic restructuring. Fresh, nutritious, and uniquely-flavored products are increasingly favored by consumers. Such products include low-temperature milk, low-temperature yogurt, formula liquid milk, organic milk powder, cheese, and butter. Market emphasis has gradually shifted from normal temperature to low temperature and from milk powder to solid dairy products like cheese and butter.

The processing demand for solid milk, represented by cheese and cream, has increased significantly. Over the past two years, the annual growth rate for cheese market has been maintained at a robust 20-25%, with total consumption in 2017 exceeding 140,000 tons. From 2014 to 2016, the average annual growth rate for thin cream soared to 40.7%, with consumption in 2017 in excess of 200,000 tons.

According to China Customs, China imported 1.7688 million tons of dried dairy products in 2017, a16.2% increase. Cheese imports were up 108,000 tons, and cream imports were up 91,600 tons, demonstrating that China's dairy industry has entered a new phase of development.

Five trends in the Dairy 3.0 Era

1. High-end Products

70%~80% of China's milk results in "indirect consumption", including use in food additives, catering and baking, butter, thin cream, cheese, condensed milk, milkshakes and other forms. Chinese consumers encounter dairy products in a wide range of contexts, including high-end products that were rarely consumed a generation ago.

2. Nutritious

Increasing disposable income and awareness of dairy products, have spurred growth in China's dairy market. Many Chinese parents are informed about the nutritional benefits of dairy products, and incorporate dairy into their children's diet.

3. Functional

Solid milk can help with fitness, weight loss and body building. Product segmentation, with new categories such as protein shakes, has created demand for products that provide supplemental calcium.

4. Social

Consumers are increasingly turning to products with social features. Dairy producers can offer community-based products to different consumer groups, such as the elderly, children, long-distance runners, fitness groups, and consumers hoping to lose weight.

5. Fashionable

Due to consumption upgrading, dairy in Chin is trending towards high-quality, personalized and fashionable products.

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