December 16, 2004

Dairy Enterprises in China See Lower Profits

Chinese dairy enterprises have seen their profits decline over the past few years with most of the country's dairy enterprises now in the red, according to the China Association of Dairy Products Industry.

Currently only one-fourth of the dairy enterprises make a profit.

Incomplete statistics show that in 2003, about 27.5 per cent of the more than 1,600 dairy enterprises in China incurred losses with a total loss of RMB 510 million (US$61.6 million), rising 66 per cent year-on-year.

In the first half of this year, the profits of the dairy enterprises in 15 provinces, autonomous regions and municipalities went down to various degrees compared with the same period in 2003. Two of the country's 10 dairy giants also registered losses in the first six months this year.

Experts attribute the lowered profits for dairy enterprises to the lack of macro control, development in disorder, unbalancing and lagging consumption of dairy products.

Chinese dairy enterprises mainly produce milk powder and liquid milk at present. The similarity of products and marketing has resulted in their sales at reduced prices, thereby bringing down their profits.

In addition, the consumption of dairy products is concentrated in big and medium-sized cities while the consumption of dairy products in rural areas is of low quantity with slow growth.

Experts state that when developing the dairy industry, it is important to map out an overall plan and layout for the dairy sector so as to promote the development in a coordinated way.

The departments concerned should strengthen the market management and monitoring, standardize the order of competition and set market access threshold for dairy enterprises so as to prevent disordered competition.

The experts also note that dairy enterprises should be encouraged to engage in deep processing of dairy products to develop the products needed by clients at various levels.