How can the dairy industry break out of the cycle of "scrambling when supplies are short and dumping when there is too much"?

According to reports, in the first half of the year more than 50% of China's dairy industry as a whole was operating at a loss, and the mid-year reports of listed dairy companies were also unimpressive, with overall performance declining. Sluggish market consumption, excessively low milk prices, and a severe inversion between international and domestic milk prices are among the pains currently afflicting the national dairy industry as it strives to revitalize and develop.

In recent years, China's dairy industry has made major achievements, becoming the world's third-largest dairy producer. In 2015, China's raw milk and dairy product output reached 38.7 million tons and 27.82 million tons respectively, and the national pass rates for spot checks on raw milk and dairy products reached 99.3% and 99.5% respectively; per capita dairy consumption reached 36 kg; the pass rate for melamine spot checks remained at 100% for 7 consecutive years, and indicators such as milk protein and milk fat in large-scale pastures reached the level of developed countries. The mode of dairy production has changed markedly. The proportion of large-scale dairy cattle farming exceeded 48%, and the per-unit yield of dairy cows rose substantially, with Holstein cows averaging 6 tons per unit and high-yielding dairy cows of more than 9 tons reaching 1.5 million head. Large-scale farms have all achieved mechanized milking; specialized cooperative organizations of dairy farmers exceed 15,000, and the level of scale, standardization, mechanization, and organization in dairy cattle farming has risen significantly. The level of major dairy processing equipment and technology has approached or reached the world's advanced level, and the market share of the top 20 dairy enterprises has exceeded 50%. China spent more than 30 years completing a dairy industry development process that took developed countries a hundred years, and these achievements have not come easily.

In the great development of China's dairy industry, apart from consumers' lack of confidence in consumption, the constantly changing market has also deeply affected dairy farmers on the production side, and news of dumping milk and slaughtering cows has been incessant. In the past, when the market was poor, dairy companies refused to accept milk on the grounds of small scale, low standardization, and poor quality; now dairy farmers' production level has improved, and dairy cows no longer eat straw, drink cold water, and sleep in mud, but instead live well eating alfalfa, the "king of forage grass," drinking hot water, and sleeping on beds. The rearing environment for dairy cows has improved, and the quality and grade of the milk have also improved, yet dairy farmers still cannot escape their disadvantaged position. Some pasture owners say that when the raw milk market was relatively good, major dairy companies rushed to compete for milk sources, and large domestic dairy companies all wanted to sign milk supply agreements with them. Moreover, when signing contracts, the two sides did not set an upper limit, only a lower limit, wishing the more milk produced the better, and if the lower limit was not reached they even had to pay liquidated damages to the dairy company, while there was no clear provision for an upper limit. Because contracts are signed for 10 years, pastures continuously increased investment and improved technical management, and in recent years the natural growth of fresh milk rose relatively quickly. But unexpectedly, when the dairy market was poor, dairy companies directly imposed volume limits, leaving the increased fresh milk unable to be handled in time and bringing great losses to dairy farmers.

Dairy companies also have their own grievances. Although they continuously intensify marketing and keep improving product quality, they still cannot stop the trend of consumers buying foreign dairy products. To use a currently popular phrase, the supply side and the consumption side have become disconnected, and this is especially prominent in the dairy industry chain. Although contracts have been signed between production and processing, and even when milk sources were tight the contracts clearly stipulated that a pasture must not deliver less than a certain number of tons of milk per day, the deep-seated contradictions in dairy industry development have not been resolved. Dairy companies and dairy farmers are two business entities both pursuing maximization of their own interests. Under a series of overlapping factors such as sluggish consumption, insufficient market confidence, rising inventories, and falling international milk prices, although dairy farmers and dairy companies are a community in the same industry chain, the interest relationship established between them is not close, leading to the repeated occurrence of the situation where there is dumping when there is too much and scrambling when there is too little. Although at present the proportion of milk sources self-built or jointly invested in by dairy companies exceeds 20%, with Modern Farming's "integrated model of breeding, farming, and processing" and "completing the process from milking to processing in 2 hours," and with the win-win interest linkage mechanism created by Zhongding Dairy for cooperation between dairy farmers and dairy companies, forming the country's largest innovative dairy farmer consortium and building a model of advancing and retreating together with dairy farmers, the production part, which carries the greatest cost and risk in the dairy industry chain, is still the part where dairy farmers buy high-priced dairy cows, and the direct investment in dairy cows and feeding for milk production is made by dairy farmers, while dairy companies handle the asset-light links of processing, branding, channels, and sales. Although production and processing are bound by a contract, in a severe market environment a thin contract cannot solve the predicament of dairy farmers and dairy companies.

The development of the dairy industry bears on the happy life of the Chinese people, farmers' employment and income growth, and the nation's important agricultural product and food supply security, and is of great significance. The just-concluded China Dairy Top 20 (D20) Summit and Dairy Industry Revitalization Conference issued a declaration: to take stabilizing milk sources as their own responsibility and build a fair and reasonable interest distribution mechanism. To form a community of shared future with the broad masses of dairy farmers, share pressures and share results, cooperate closely and develop together. This is of great significance at a time when China's dairy industry development is in a critical period of transformation and upgrading and a period of tackling tough problems.

It should be noted that although the current contradiction between market supply and demand is prominent, in the long run China's dairy industry development still has deep potential, and the current saturation of dairy products is at most temporary saturation. Last year, the growth in national liquid milk sales was still relatively fast among various categories of bulk foods. With population growth, improvement in people's living standards, and favorable news such as the relaxation of the "two-child" policy, dairy consumption is expected to maintain a stable growth trend over a relatively long period, and China's dairy industry is still in an important stage where much can be achieved. At present, during the period of structural adjustment and transformation of the dairy industry, with dairy farmers strictly producing according to contracts, dairy companies must strictly abide by the spirit of contract and, more importantly, take a long-term view. When market consumption is weak, they should shoulder the responsibility of revitalizing the national dairy industry, and must not limit the collection of fresh milk from domestic pastures when foreign milk powder prices are low. They should earnestly fulfill their commitments, earnestly build a community of shared future with dairy farmers, lead industrial transformation and upgrading, and vigorously promote the transformation of the traditional dairy industry into a modern dairy industry. Only when dairy farmers and dairy companies jointly shoulder their responsibilities can the goal of a win-win ecosystem for farming and processing be achieved.