Healthy development of the dairy industry needs top-level design
A reporter's recent research found that in recent years China's dairy industry has gradually lost pricing power, causing large fluctuations in milk prices and inflicting huge damage on both upstream and downstream of the dairy industry. Some enterprises and experts worry that under the current situation, if the farming ranks remain unstable and the proportion of imported milk further increases, China's "milk bottle" may completely fall into the hands of foreign companies.
"Three years for pigs, four years for milk." The industry believes that China's milk cycle has already formed and will become the norm. In 2013, China's milk price reached a high of 5.5 yuan, then began to decline all the way. In the first half of 2015 the decline widened, and it has now fallen to 3.5 yuan, a drop of nearly 40% over 2 years, showing "roller coaster" style fluctuations.
The sharp rise and fall of milk prices has had a huge impact on the healthy development of China's dairy industry. At the peak of milk prices in 2013, many processing enterprises had to buy milk at high prices to ensure production, causing the prices of raw milk and finished products to be inverted; at the trough of milk prices in 2015, processing enterprises with high inventories had to refuse milk and limit milk intake, which in turn caused farmers to kill cows and dump milk, damaging the entire industrial chain.
"The milk price barometer is not based on domestic prices, but on Fonterra's auction prices." said Chen Lijun, deputy general manager of Beijing Sanyuan Foods Co., Ltd. China's milk price fluctuations are mainly affected by international milk prices, and now the cycle is three to five years.
Liu Meiju, vice chairman of the China Dairy Industry Association, said that a pattern has formed in recent years: when milk supply is tight, foreign countries raise prices, and domestic farmers begin to raise cattle. When domestic cattle farming increases, foreign countries lower prices, and domestic farmers begin to slaughter cattle.
Experts believe that the reason China's dairy industry is greatly affected by international factors is mainly that imported milk accounts for too large a share of China's dairy market, and that share is still constantly increasing, so China's dairy industry is losing its voice. According to statistics, since 2008 the annual output growth rate of fresh milk in China has been about 0.8%, but the growth rates of processing and consumption have both been above 6%, and this gap has been filled by imported dairy products.
According to statistics, in 2015 China's annual sales of infant formula milk powder were about 700,000 tons, of which 176,000 tons were imported as finished small-package original milk powder, up 45% year on year. Overseas purchasing, overseas online shopping, online buying, and milk powder brought in by inbound travelers also grew rapidly, reaching a historic high of 130,000 tons. Imports of liquid milk reached 470,000 tons, up 39% year on year.
The reporter's investigation found that although the absolute quantity of imported dairy products declined last year, domestic dairy products declined even faster, meaning that the overall share of imported dairy products is still rising and has now reached about 25%.
Gu Jicheng, secretary-general of the China Dairy Association, said that the share of imported milk is basically reasonable, and even slightly more would be acceptable, but the worry is that uncertain factors will cause the share of imported milk to suddenly increase too quickly. "For example, the EU has now abolished the quota system and is also at odds with Russia, a major consumer country, so all the surplus milk produced has to flow into China."
The industry generally believes that effectively using both international and domestic resources is the necessary path for the development of China's dairy industry, but China's dairy industry still needs to remain stable, and the milk bottle cannot be held in the hands of foreigners.
Liu Meiju said that enterprises should be encouraged as a priority to use more domestic milk sources, and then import appropriately. But now, while the proportion of imports keeps rising, domestically cows are being slaughtered and milk dumped, and enterprises are on the verge of bankruptcy, which is clearly abnormal.
Dairy analyst Song Liang said that if China's farming industry cannot remain stable during the milk cycle, then the next dairy downturn will completely destroy the foundation of large-scale farming since 2008. "The 140 billion yuan cumulatively invested in land, infrastructure and other areas for dairy cattle farming over these years will have been thrown away for nothing."
Experts said that unlike the price cycles of pigs and poultry, adding to dairy cattle herds requires large investment and takes a long time. If the farming industry suffers large-scale losses and the milk source market is seized by foreign countries, it will be difficult for China to win it back. Chen Lijun said that if the proportion is not handled well, once the knife handle of adjustment is in someone else's hands, using imported milk is like drinking poison to quench thirst.
The industry believes that if development continues under the current situation, farmers will exit the market on a large scale, the entire milk source system will collapse, and enterprises will again be forced to use imported milk as raw material on a large scale. By then international milk prices will soar, the right to develop the dairy industry will be controlled by foreign countries, development costs will rise substantially, and China will have to spend more money buying imported milk to meet domestic demand for dairy products.
In addition, experts believe that foreign milk powder is not suitable for Chinese people's constitution, and if children all grow up on foreign milk powder, that is also worrying. Gu Jicheng said that many Chinese dairy enterprises have cooperated with human milk research institutions to establish human milk banks and produce milk powder most suitable for Chinese infants and young children. For example, our national standard requires that the proportion of whey protein in milk powder reach more than 60%, but milk powder originally produced in Europe and America does not pay much attention to this issue.
Experts pointed out that if China's dairy industry is to develop healthily and stably and solve the "milk cycle" problem, it urgently needs a more comprehensive and complete top-level design and a more accurate judgment of the current situation of China's farming, supply and demand, and self-sufficiency rate, so as to formulate more accurate policies.
First, clarify the leading position of domestic farming in the dairy industry. Song Liang said that if small and medium-sized pastures disappear in the future and international milk sources completely control the domestic market, large pastures will basically also die out. Therefore, at present it is appropriate to give moderate protection to medium-sized farms of 100 to 1,000 head, and in the long term support small and medium-scale farms with family pastures and cooperatives as the main operating entities.
Second, conduct a systematic fact-finding survey of the entire dairy industry. Experts said that the currently published statistics on the dairy industry are inflated, and further research is needed on how many dairy cows there really are in China now, how much raw milk can actually be produced, how much environmental capacity there is, how much usable land there is, how many dairy cows can be raised in different regions respectively, and domestic processing and consumption capacity, so that the introduction and implementation of other policies can have a basis.
Third, clarify the level of dairy self-sufficiency. Li Shengli, chief scientist of the National Dairy Cattle Industry Technology System, said that using imported milk for adjustment is correct, but at present no department knows how much import is reasonable, and China's dairy industry may evolve into "success due to imported milk, failure due to imported milk." Relevant departments still need to study what level of self-sufficiency is appropriate, what is the red line, and what is the warning line, and hold the milk bottle firmly in their own hands.
Fourth, there is a need for a medium- and long-term top-level design that transcends departmental and regional interests and stands at the national level and from a global perspective, to stabilize China's dairy production and the balance of supply and demand. Chen Yu, associate researcher at the Agricultural Management Institute of the Ministry of Agriculture, said that the dairy industry involves every aspect from planting grass and raising cattle to processing and sales. The Australian Bureau of Agricultural and Resource Economics and the United States Department of Agriculture each manage it under one department, but in China it is now like "railway police, each guarding a section," and sometimes policies issued by various ministries, commissions, provinces and regions fail to consider the national market as a whole, instead aggravating the dairy crisis. Therefore, when the state formulates dairy policies in the next step, it must listen to all sides to be enlightened.