Research Report on China’s Dairy Cattle Market

Both the national economy and the income of urban and rural residents rose quickly in the past decade, and the dairy industry gained a substantial development thanks to Government promotion, mobilization from the processing industry, consumption and export demand, and rising of residents' conscience on nutrition and health care. China grew into a big dairy country from one that was short of milk. The national cow milk output rose from 6,011,000 tons in 1997 to 35,127,000 tons in 2007, and dairy cattle inventory from 4,265,000 to 13,879,000 during the same period of time, up by 2.25 folds and 4.84 folds respectively. And, the yield of the whole herd rose from 1,409,000kg to 2,531,000kg, up by 79.58%. Mengniu and Yili, the two largest dairy companies in China, saw over 20 billion yuan of yearly sales revenue in 2008, and are in the world top 20 of dairy companies from the perspective of scale. In general, China's dairy industry went through a track of quantity expansion in the past decade, whereas there are lots of deep-rooted contradictions and problems, which are mainly (1) low percentage of elite dairy cattle breeds and poor milk yield level. In 2006, the dairy cattle inventory was 13.632 million in the nation, of which pure-breed Holstein cattle around 35%, lots of the Holstein cattle reared in the crop producing regions and pastoral regions are cross breeds between Holstein and local cows, making up around 35-40%. In addition, there are 2 million dairy/beef cattle reared in Inner Mongolia and Xinjiang for both milk and meat purposes, including Xinjiang Brown Cattle, Grassland Red Cattle, Sanhe Cattle, Simmental and etc., and the cow yield is less than 2,000kg. China Holstein pure breed, the mainstream breed of dairy cattle in China, has a big gap with developed countries in various production performance indicators, and the milk yield (4,100kg average cow yield) is merely 60% of the world advanced level. The percentage of elite breeds is poor, Holstein pure-breed cattle and local cross breeds aggregate less than 80% of the total. Breeding capability with special characteristics is at a low level, some places even suffer from degradation. (2) Low scaled farming level and backward feeding methods. Dairy farming is based on smallholder farmers, and 80% of the dairy cattle in the nation are reared by farmers with inventory less than 10. (3) Poor ratio of quality coarse feed. The composition of dairy cattle feed is not based on a scientific formula, and the conventional feed for most of the cattle is coarse feed based on corn stalk. There is lacking of quality coarse feed, specially quality alfalfa or other fodder. This restrains further improvement of production performance of dairy cattle and is a crucial factor for nutrition metabolism diseases. (4) Poor raw milk quality and low procurement standard. Neither the physical nor the chemical indices or the hygienic indices of raw milk quality is ideal, the hygienic indices of raw milk are worrisome and related standards can hardly meet the international norms. (5) There is high incidence of primary diseases of dairy cattle, and epidemic control, quarantine or supervision system is outdated. Alongside the rising of "popularity of dairy cattle" nationwide in recent years, there has been "popularity of cattle trading" as well. There are outbreaks of cattle tuberculosis, Paratuberculosis and Brucelliasis in certain places in China, and there is a trend of proliferation. (6) The development of dairy farmers' cooperatives is outdated, becoming a bottle neck of the sustainable development of the dairy industry.

2008 saw the outbreak of the "Sanlu infant's formula milk incident" or "melamine incident". The national dairy industrial chain was seriously affected, and the incident was attributable to raw milk. After the incident, smallholder farmers confronted with unprecedented difficulties and elimination by the market. Also after the incident, the dairy cattle inventory fell noticeably, dropping to 13 million in the end of 2008, and there was a further shrinkage to 12 million in the first quarter of 2009. The dairy farming industry in China is about to see a profound restructuring. Since the melamine incident in 2008, the Government has strengthened regulating and administration over the whole dairy industrial chain, especially regulating and administration over dairy farming has reached an unprecedented level. Among the policies and regulations promulgated by the Government, the representative ones are the "Administrative Rules of Dairy Product Quality, Safety and Supervision" and the "Food Safety Law". The melamine incident resulted to pacing up of the transition of China's dairy farming mode, i.e., shifting from extensive quantity expansion to scaled and intensive farming with quality and efficiency.

By far, the dairy industry has grown from small to big, however, compared with the mature dairy industry of developed countries, China's dairy farming industry is still at an infant stage and should learn from the advanced countries. The dairy farming industry of China has a huge demand for foreign resource thanks to the accelerated transfer of farming mode and the related profound reform. Based on concrete data, this report illustrates the current status and the trend of the dairy farming industry of China after a study on the whole dairy farming chain in the past decade and especially after the melamine incident. This report is composed by the top think tank of China's dairy industry, and is a rare reference for companies, institutions or researchers who wish to benefit from the huge development opportunity of China's dairy farming industry after the melamine incident.