Some milk returns to the one-yuan era, dairy companies rush into promotions for the Mid-Autumn Festival

On one hand, they buy foreign raw milk at high prices; on the other, sales in the dairy products market are sluggish. It is hard to imagine that in a country with a relative shortage of milk, the dairy industry, like the steel industry, has also entered an era of overcapacity. Wang Wei (pseudonym), head of a livestock farming enterprise at a pasture in Weifang, Shandong, said in an interview with a Securities Daily reporter: "The current milk price is 3.9 yuan/kg, and the average price in the first half of the year was about 3.8 yuan/kg. This price is profitable for us farming enterprises. Now dairy companies set the milk price according to milk quality; high-quality raw milk gets a higher price, and what is generally rejected is milk that fails to meet standards."

"Over 50% of dairy farming operations are operating at a loss." This is the true picture of China's dairy industry today. The dairy industry has been placed on banks' list of "high-risk" industries, and price wars in dairy products seem to have become the norm.

Recently, a Securities Daily reporter walked into the Inzone supermarket in Weifang, Shandong, where dairy products occupied most of the food and beverage display area. To seize the Mid-Autumn Festival peak consumption season, dairy companies have rolled out promotional advertisements one after another: half-price sales, buy one get one free.

Consumers may enjoy this, but for dairy companies, behind the price war there is nothing left but losses and helplessness.

Some milk returns to the one-yuan era

On one hand, they buy foreign raw milk at high prices; on the other, sales in the dairy products market are sluggish. It is hard to imagine that in a country with a relative shortage of milk, the dairy industry, like the steel industry, has also entered an era of overcapacity.

According to a Securities Daily reporter's survey, at the Inzone supermarket, all dairy companies took part in the Mid-Autumn Festival discount sales campaign. Among them, all products of Sanyuan Foods were on discount. Sanyuan whole milk pure milk was originally 78 yuan/box, with a promotional price of 52 yuan/box, a drop of 26 yuan per box; Sanyuan Nutrition Shushi Milk was originally 62.04 yuan/box, now selling for 39 yuan/box; Sanyuan Luhe Milk was originally 68 yuan/box, now 33.9 yuan/box, half price per box.

In addition, Huishan Dairy's Wolingka Russian-style fermented milk was originally 66 yuan/box, now 33 yuan/box, sold at half price; 12 boxes of Huishan 250 ml pure milk sold for only 16.9 yuan, averaging 1.4 yuan per box, even lower than the price of ordinary purified water.

To promote sales, merchants can be said to have exhausted every trick. On one Yili shelf, the words "grab, grab, grab" were displayed, and 16 boxes of Yili 240 ml pure milk sold for only 29.76 yuan. In the Mengniu section, Mengniu's Xinyangdao was originally 57 yuan/box, now 39.9 yuan/box; buy one box of Telunsu and get 10 yuan off immediately; buy one box of Mengniu Selected Pure Milk and get 20 yuan off immediately.

It is worth noting that many bagged milks have returned to the one-yuan era: Yili paper-packaged pure milk at 1.86 yuan/bag, plastic-bagged pure milk at 1.6 yuan/bag. Similarly, Mengniu bagged pure milk retails at 1.69 yuan/bag.

The Securities Daily reporter found that in this price war, imported dairy products were also unable to stay out of it. Singapore's Greenfields pure milk was priced at 66 yuan/box, with a free senior mobile phone included; New Zealand's Nusland 10 boxes of 250 ml pure milk sold for only 29.9 yuan, meaning a box of imported pure milk that traveled across the ocean to China cost only 2.99 yuan.

Such examples are too numerous to count. 12 boxes of 200 ml DMlowfat low-fat pure milk sold for 39.9 yuan; Arla Foods whole milk was originally 17.8 yuan/box, now 10.9 yuan/box; JieSen whole milk, originally 23.8 yuan/box, now 13.9 yuan/box.

In addition, discounts and promotions for ambient liquid milk, dairy beverage products, and low-temperature pasteurized milk were also everywhere. For example, Junlebao offered two bottles free with the purchase of two; for Sanyuan DIY yogurt, the first bottle was 9.8 yuan and the second bottle was 1 yuan.

Although the price war was frantic, sales performance was less than satisfactory. A Securities Daily reporter observed in the supermarket for nearly 2 hours and saw very few buyers.

"There are many categories to choose from when giving gifts during festivals now, and consumers do not necessarily have to buy milk." A salesperson told the Securities Daily reporter that this can be seen from the current sales situation. Purchasing power before the Mid-Autumn Festival has also rarely increased, because few people give gifts on a whim.

This fully reflects the fierce competition among domestic dairy companies at present. In the view of industry insiders, since last year, the price war among domestic dairy companies has already begun, but the price war has not driven sales as expected. At the same time, farming enterprises often process the squeezed raw milk and sell it at low prices, which forces dairy companies such as Mengniu, Yili, and Sanyuan to passively follow and join the price war.

Song Liang, a senior figure in the dairy industry, told the Securities Daily reporter that during a recent visit to the Tai'an market, the price war in dairy products was equally intense. This shows that consumption this year is very weak, and for dairy companies, product backlogs are serious. "'Buy and get free' marketing generally means adding products from several months earlier to current-period products, and companies are continuously destocking." The purpose of dairy companies doing this is to move volume, earning only thin profits.

Dairy farmers: milk delivery has been smooth in the past three months

So, are dairy farmers also struggling just as much?

To find out, the Securities Daily reporter interviewed dairy farmers in Weifang, Shandong, and in Hebei. Both said that milk had sold relatively well in the past 3 months, and companies no longer rejected deliveries.

Among them, Wang Wei (pseudonym), head of a livestock farming enterprise at a pasture in Weifang, Shandong, said in an interview with a Securities Daily reporter: "The current milk price is 3.9 yuan/kg, and the average price in the first half of the year was about 3.8 yuan/kg. This price is profitable for us farming enterprises. Now dairy companies set the milk price according to milk quality; high-quality raw milk gets a higher price, and what is generally rejected is milk that fails to meet standards."

"Raising cattle is delicate work. The more you put in, the higher the per-cow yield will be, the quality of the milk will be guaranteed, and the returns will be greater. Some farming enterprises take out loans to raise cattle. Once a cow gets sick and the raw milk fails to meet standards, the farmer's life is certainly not easy." Wang Wei said. Taking all cost factors into account, raw milk at 3.1 yuan/kg can break even, and now the price has reached about 3.9 yuan/kg, so farmers definitely have money to make. In the past 3 months, the price of milk on the open market has also sold quite high, which shows that milk prices are now starting to recover, and the imported bulk milk powder on the market has been mostly digested.

On the other hand, at a pasture in Hebei, Mr. Hou's farm has about 1,600-plus dairy cows, with daily milk production of about 16 tons. He sold all his raw milk to Junlebao at a price of about 3.4 yuan/kg.

Mr. Hou told the Securities Daily reporter that dairy farmers had a hard time three months ago. Companies raised milk collection standards, and if farmers' milk failed to meet standards, companies would reject it. Now companies generally accept all deliveries.

Although the milk price has kept falling instead of rising, in Mr. Hou's view, the current price is still profitable for him.

However, another farmer in Hebei, Mr. Li, was not so lucky.

Mr. Li told the Securities Daily reporter that he raises more than 500 dairy cows. This spring, companies rejected deliveries, and that was also when the cows produced the most milk, so he had to slaughter more than 50 dairy cows. Milk production also fell from 6.5 tons at the beginning of the year to 4.8 tons. "Starting in July, the partner company Sanyuan stopped limiting volume, but the price was not high, about 3.2 yuan/kg."

Because he had previously upgraded the farming environment, Mr. Li invested more than a million yuan, so even while losing money he had to keep going. "Since last year, I have been losing money every month. At the worst point, I lost 30,000 yuan a month, and I am still losing money now. But I still have to keep going. If I stop, the previous investment will be a total loss."

Judging from the situations of the heads of two pastures in Hebei, pastures under loan pressure are having a relatively hard time in the current dairy industry environment, but as long as the cows produce high-quality milk, dairy farmers can still make a profit.

In the view of dairy experts, in order to ensure the stability of the industrial chain, in the next few years dairy companies signing long-term purchase contracts with dairy farmers, collecting milk, spray-drying it for storage, and processing it into products for low-price promotions will become the norm in the industry.

Song Liang said: "Dairy farming enterprises such as Huishan, Shengmu High-Tech, and Modern Farming process raw milk into products and sell them at low prices, with the aim of digesting milk-source inventory. Precisely because of this, brands such as Yili, Mengniu, Bright Dairy, and Sanyuan have also been forced to join the price war. At present, Yili is doing relatively well, and the dates of the products it gives away are also current-period, while Mengniu is under greater pressure."

So when can this fierce price war among dairy companies come to an end?

In response, Song Liang said that this situation will last until 2018. As the economic environment improves and consumer food safety education is improved, dairy consumption can recover. "Consumption in China's third- and fourth-tier regions is incidental consumption, generally gift consumption, spending by public funds, and so on, and consumers have not formed stable consumption demand."