Overview
The dairy industry in China is experiencing a shift towards more affordable milk prices, with over 10 companies facing losses. This trend, while beneficial for consumers, poses challenges for the profitability of dairy enterprises. The market is witnessing a surplus of raw milk supply over demand, leading to increased promotional activities and a downward pressure on retail prices.
Market Dynamics
According to an article published by Times Finance on September 6, 2024, supermarkets are increasingly offering discounted milk prices. Local brand pure milk, originally priced at 40 yuan for a pack of 12 bottles, is now being sold at a promotional price of 19.9 yuan. Even premium brands like Yili and Mengniu are offering discounts on their high-end products.
The shift towards affordability is a result of the growing supply of raw milk, which has exceeded demand. This surplus has been building up since 2020, when the dairy industry faced a shortage of milk supply, leading to a rapid increase in dairy farm investments. As new farms began operations, the supply of raw milk continued to grow, creating a mismatch with the demand that has remained relatively stable.
Impact on Dairy Companies
The oversupply has led to promotional activities and lower retail prices, putting significant pressure on the financial performance of dairy companies. Times Finance observed that out of 33 typical dairy companies, only 9 achieved revenue growth, while 11 recorded losses. Major players like Yili Group, Mengniu Dairy, Bright Dairy & Food, China Feihe, and Yurun Dairy have seen their revenues decline due to the market conditions.
Regional dairy companies have been particularly affected by the external pressures, with companies like Yantang Dairy, Tianrun Dairy, and Maiqier reporting significant declines in net profits. This is primarily because the increased supply of raw milk has led to promotional activities, driving down retail prices and impacting the companies’ bottom lines.
Consumer Benefits and Industry Adjustments
While the current situation poses challenges for dairy companies, it is beneficial for consumers. The downward trend in milk prices aligns with the cost-effective consumption trend, which may help in market development and increase per capita sales of dairy products. Major companies like Yili, Mengniu, Bright, and Feihe are adjusting their product structures, speeding up the launch of new products, and diversifying into categories like cheese.
Independent dairy industry analyst Song Liang remains optimistic about the future of the dairy industry, stating that the current consumption situation is only a temporary difficulty. He believes that the decline in prices will help in cultivating consumption habits and increasing consumption in the third and fourth-tier markets.
Diversification and Innovation
Dairy companies are also diversifying their product lines to cater to the evolving consumer demands for personalized and diverse dairy products. Categories like infant formula milk powder and cheese have shown positive performance, driven by supportive policies like the three-child policy. Companies like China Feihe, Ausnutria, and Beingmate have seen revenue growth in the first half of the year.
Mengniu Dairy has launched new frozen food products, while Bright Dairy & Food introduced 34 new products across various categories. Yili Group aims to make water beverages a second growth curve and is exploring non-dairy businesses. The sports event-filled year of 2024 has also provided opportunities for dairy companies to launch new products, with Yili introducing over a hundred Paris Olympic limited products.
Future Prospects
The dairy market in China still has significant growth potential. According to the National Bureau of Statistics, the country’s per capita annual consumption of milk is only one-third of the global average and half of the Asian average. The China Dairy Association predicts that by 2025 and 2030, China’s per capita dairy consumption will exceed 45 kilograms and 50 kilograms, respectively.
In conclusion, while the current market conditions pose challenges for dairy companies, the trend towards more affordable milk prices is likely to benefit consumers and the industry in the long run. With innovation and diversification, the dairy industry is poised to capitalize on the growing consumption potential in the third and fourth-tier markets.
Views: 0