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The ongoing modernisation of China’s dairy sector

December 2019

China has long aimed to increase dairy consumption to improve public health and nutrition. During the past ten years, the entire dairy supply chain has been modernising, but the sector’s transformation is not yet complete. The industrialisation of dairy farming, vertical integration by processors and the upgrading of genetics and technology will continue. These trends will lead to better food safety and quality, and a proliferation of new dairy products.

Dairy farming sector

With more demanding food safety and quality requirements and increasingly strict environmental regulations, China’s dairy production is shifting from small-scale to large-scale dairy farms. Between 2008 and 2018, raw milk production was stable, while the average dairy farm scale more than tripled and number of dairy farms fell by nearly 75%. At the same time, average dairy cow productivity grew by 60%.   

In 2008, farms with more than 100 cows only accounted for 20% of China’s dairy herd; by 2018 that number was over 60%. The number of farms with more than 1000 dairy cows increased from 112 in 2002 to more than 1350 in 2017.

These trends are similar to those in the US and Europe during the past 30-40 years.

Source: 2019 China Dairy Statistical Summary, PwC estimates

The current wave of modernisation in China’s dairy farming sector is focused on larger farms, mechanisation and genetic improvement. The next wave will include automation of milking and feeding, and precision livestock farming. These technologies will further increase efficiency and productivity while improving animal health.

Dairy processing sector

China’s leading dairy companies are driving the industry’s modernisation by increasing their vertical integration and enhancing product development. In China and overseas, they are acquiring and investing in dairy farms, processing capacity and brands.

As China’s disposable income grows and the “consumption upgrade” trend continues, demand for dairy products will increase. China’s largest dairy companies are increasing the variety in their product lines, especially at the premium end. They are taking advantage of growing cold chain capacity and the expansion of modern retail chains, (i.e. hypermarkets, supermarkets, convenience stores and maternity stores), to increase market penetration, especially in third- and fourth-tier cities.  

10 Keys to success for dairy companies in China

In spite of high production costs and import dependence, China’s dairy industry offers many opportunities based on modernising dairy farms, growing cold chain capacity, an expanding middle class and favourable government policies. Dairy farming and manufacturing companies that take a rigorous approach to strategy can deliver long-term profitable growth.

This report covers China’s entire dairy supply chain and product range, including UHT milk, fresh milk, yogurt, ice cream, cheese and infant milk formula, as well as 10 keys to success for dairy companies in China. 

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Wenjing Cao

Partner, Food Supply and Integrity Services, PwC China

Tel: +[86] (10) 6533 7026

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