Milk-and-Dairy-Products-in-Human-Nutrition-FAO

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Milk and dairy products in human nutrition
Box 8.5
The Chinese Dairy Park Collective business model:
investment-driven growth
China has one-fifth of the world’s population, but produces only 4.4 percent of the
world’s milk. However, between 2000 and 2006, gross output of milk and dairy
products quadrupled to 33.6 million tonnes. Over the past two decades per capita
consumption of milk has grown from less than 2 kg to about 20 kg per year. Urban
consumption is about five to eight times rural consumption, reflecting the widening
income gap between town and country. Some 1.5 million smallholders (98 percent of
milk producers) managing up to 20 cows produce two-thirds of domestic milk supplies;
four-fifths of these smallholders have fewer than five cows.
While the world market for milk grew by an average of just 1.2 percent per year
between 1991 and 2004, China’s dairy market grew by a massive 16 percent annually.
1 However, the gap between supply and demand is widening and is met by imports,
which totalled some 2.4 million tonnes of LME in 2007, 7 percent of consumption.
The phenomenal growth in milk production has largely taken place in the three
northern province of Hebie, Heilongiang and Inner Mongolia, which by 2006 were
producing 52 percent of national milk output, up from 18 percent in 1985. In these
provinces smallholders are reported to earn more income from dairying than from
growing crops; the profit–cost ratio of smallholder milk production is nearly double
that of maize and three times that of potatoes. 2
It is not surprising that two dairy companies from the Inner Mongolian Autonomous
Region, Yili and Mengnui, are now the largest in the country, each having
grown their turnovers from a few million United States dollars annually in the late
1990s to well over US$1 billion by 2007. As a result of huge investments in milk
processing across China since the late 1990s, it is estimated that processing capacity
exceeded demand by about 30 percent in 2003. This tended to sharpen competition
among the three leading processors; as a result, farm gate prices were, and still are,
depressed. Most of the spare capacity is now better utilized as demand continues
to grow (up 22.5 percent in 2007), but farm gate prices have hardly changed. The
reasons for this are difficult to ascertain. However, it is understood that price collusion
by the large dairy companies enables them to control prices.
To keep costs low and improve milk quality, China’s processors have set up a
number of community-based units or “dairy parks” where smallholders keep and milk
their cows. The parks, which are financed by either the processors, the local authority
or the smallholders themselves, each house between 300 and more than 1 000 cows.
The key lessons for smallholder dairy development in China are: (i) the availability
of cheap land and labour in the Northern Province stimulated low-cost milk production;
(ii) the policy of supporting dairying from local taxation and allowing capital to
be raised from the Hong Kong stock market enabled rapid expansion; (iii) the selection
of capital intensive UHT milk by the processors (not by the market) enabled rapid
expansion without the need to establish an expensive cold chain; (iv) price collusion