September 8, 2005

 

China's dairy revolution

 

For the past 500 years, most Chinese have traditionally shunned milk and other dairy products, preferring other drinks such as tea.

 

However in the past decade, as urban Chinese became increasingly affluent, the world's most populous nation has adopted a more Westernised diet which includes eating more meat and drinking milk.

 

Parents are especially concerned that their children will grow tall, pointed out Anthony Emms from food industry consultancy Stanton, Emms & Sia.

 

Another factor has been the thousands of supermarkets and convenience stores that have sprouted across China, making it more convenient for consumers to buy milk.

 

China has now emerged as the seventh-largest milk producer in the world, with an output of 18.5 million tonnes of milk last year.

 

However, China's two largest dairy companies Yili Group and Mengniu Group, say that milk production does not meet the country's demand.

 

Yili's executive director Liu Chunhai estimated that milk production by the company would fall short of demand by 400,000 tonnes this year.

 

Unsurprisingly, China's demand for milk is expected to grow even faster in the coming years. The China Association of Dairy Products Industry estimates that annual demand for dairy products will rise to 18kg a person by 2015, a 38 percent increase from last year.

 

Dairy farmers in Inner Mongolia have thus been importing more cows from Australia.

 

Both Yili and Mengniu, both based in Inner Mongolia, have a combined 44 percent share of China's milk market.

 

Even so, they're still increasing their investments. Yili will be investing RMB1.07 billion to expand its annual capacity by 40 percent to 1.8 million tonnes. It is also looking at north-western Shaanxi and northern Shanxi provinces for new milk supplies.

 

Mengniu plans to spend RMB900 million to expand its production capacity by 15 percent to 2.75 million tonnes by year-end.

 

Yili and Mengniu have also been aggressively advertising the benefits of drinking milk. Mengniu even signed on China's first astronaut Yang Liwei to pitch its milk shortly after he returned to Earth, and launched a high-profile advertising campaign.

 

Though most Chinese consumers prefer foreign brands, the world's largest multinational dairy companies, with the exception of Nestle, no longer produce milk for the Chinese market.