china dairy industry in global in global development
TRANSCRIPT
PRESENTED BY Hal QinBeijing Orient Dairy Consultant
Nov. 16 2016 in Hannover
H in GlobalDevelopment
China Dairy Industry
CONTENTS
2 Supply & Demand
3 Global Trade
4 Outlook
1 Big Picture
Big Picture:
Overview of
Chinese Dairy
Industry
01
01 CN Dairy big picture
• Consumer performance and level
The world’s third milk producer with the least milk per capita in Asia
As an Asian country without the history of drinking milk,our consumption level can not
compare to western countries.
01 CN Dairy Farming Situation
In 2015, >100 heads farms account for 48%(2008 19%)
Grouping and large-Scaled
27
80
32 32 34
6 8
2714 14
144
6
0
20
40
60
80
100
120
140
160
Number of farms in large dairy group
companies 108.6
90.0
66.8
40.035.3
30.025.0
42.7
15.0 13.6
52.9
20.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
Herd size of Cows(1000)
01 CN Dairy Farming Situation
In 2015, >100 heads farms account for 48%(2008 19%)
Grouping and large-scaled
840.6
700.0
536.6
370.0338.0 314.6
255.0224.4
147.0 138.5 126.6 110.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
Raw milk Prodution(1000 tons)
0
200
400
600
800
1000
1200
1400
1600
2008 2009 2010 2011 2012 2013 2014
Farms no >100 heads
01 CN Dairy Farming Situation
Rich Natural resource in China allow farmers can raise more dairy cattle
Debate 1. huge population food demand, no enough land for dairy
Debate 2. strict environment policy and serious issues
Herd sizeFarming
landLand/cow
1000 Heads Mil. Ha Ha
NZ 4922 3.3 0.7
US 9257 151.8 16.4
Canada 959.3 45.9 47.9
Germany 4296 11.9 2.8
France 3729 18.3 4.9
Netherlands 1600 1.0 0.6
China 7000 106.3 15.2
Compare to some
Advanced dairy
Countries, China
Have enough
Natural resource
01 CN Dairy Farming: Evolution
• Yili purchase Shengmu
• Skxin purchase Huaxia
• Zhongding take over small farms
• Huishan new 50k head farms in
south china
• 100 new farms in HLJ since 2013
• National and private:
ICBC, COFCO, Insurance
• Overseas
• Financing from stock market
• Financing from leasing
• Listed on HK or NEEQ
Stock and Financing
Investment
Expansion
Integration
MengniuSuppier 4000 2000
YiliSuppier 4000 2000
Scaled farmsHerd size >100 cows
19% 50%
Farms number
sharply decline
Imported breeder
decline 50% in 2015
Dairy cows decline
10.2% in Aug 2016
Best cows are kept
in big farms
01 Changein decades
Employees in
Farms
Dairy Cattle in
China
Young & Specialize
Educated and graduated
from college: animal
science or veterinary
Clear Responsibility and
job division
Better training and
management
Supply
& Demand
02VS
02 Supply & Demand: Structure
Raw milk source in North, Dairy consumption market in South
9 Province milk production > 1 million tons/year
All in North China, accounts for 80.9%
Keeps cattle 81.8%
Unit 2005 2010 2015
Dairy cattle Mil. 12.16 14.20 15.07
Raw Milk Mil. MT 27.53 35.76 37.55
Liquid milk Mil. MT 11.46 18.46 25.21
Dry Mil. MT 1.65 3.14 2.62
Processor 698 784 638
consumption kg 11.7 2013 12.6 2014
Urban Kg 17.1 2013 18.1 2014
Rural KG 2.9 3.55 6.3
Yield per cow:
From 3.89 ton 2005
To 6.0 ton 2015
Milk per people
22kg to 27.3kg
02 Supply & Demand: Price
Raw milk Price has decline 1/3, still higher than most countries
Highest, only next to few countries: Japan and South Korean
China Vs Global = 2.2
Vs NZ 2.2; Vs EU 1.7; higher 1-2 RMB/Kg
20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00
Argentina
EU28
USA
Uruguay
Russia
New Zealand
Japan
Brazil
Chile
China
IFCN
USD
/10
0kg
Av Price 2014-2016
2016
2015
2014
02 Supply & Demand: consumption
Among hundred of FMCG, liquid milk and yogurt still has biggest market share
In 2015, most of FMCG growth decelerated
In 2014, dairy consumption went into growth stagnation. yogurt is
the driving of dairy growth.
Yogurt support the quick growth of the category of sour/acid milk
Normal temperature yogurt grow fast in 2015: from 9.3% 2014 to
15.7% 2015 High end liquid milk grow better in the category of liquid milk:
DELUXE (Menniu), SATINE(Yili), Anchor (Fonterra) and Shengmu
organic
Organic is the most focused label in 2015. organic pure milk
accounts for 20.6%, growth rate 9%
02 Supply & Demand: consumption
Among hundred of FMCG, liquid milk and yogurt still has biggest market share
8.2 7.6
5.6
3.6 3.6 3.5 3.4 3.3 3.3 3.2 3.2 2.9 2.8 2.8 2.7 2.7 2.4 2.2 2.1 1.8
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11
-2 -1
4 10
-0 -2 2
10 7 4 5 7
-1 -5
4 1
6 1
-9
market share% growth rate%
02 Supply & Demand: consumption
Chinese consumers more focus the concept of Organic in the attribute of dairy
33
33
35
36
39
45
53
54
54
58
Low Fat
Natural flavors
Low sugar/ Sugar free
High in fiber
Low salt/ sodium
Organic
GMO free
No artificial flavors
All natural
No artificial colors
%
32
34
34
34
37
37
42
43
44
45
Low Fat
Organic
Low salt/ sodium
Low sugar/ Sugar
free
High in fiber
Natural flavors
No artificial
flavors
GMO free
No artificial
colors
All natural
%
Global
China
Consumer Top 10 concern concept of dairy
02 Consumption: Yogurt
Low temperature yogurt: 28.7% of acid milk category, growth rate 10%
Normal temperature yogurt: 15.7%, leap growth
International
Trade
03VS
03 Trade
Biggest dairy importer, 15.1% in 2015, 19.2% in 2014
Top Five Importer : China, Mexico, Saudi Arabia, Algeria, Russia
03 Trade
2015 imported dairy covert to raw milk: 9 million tons
2016, expected to 11.4 million tons
Infant formula Liquid milk
yogurt
Milk powderwhey
cream
cheese
Condensed milk
03 Trade: milk powder
2016 1-8 imported milk powder 480,000 tons, +14.2%
In the price of 2402 USD/Ton, -13.4%
Amount Price
03 Trade: impacting
2016 production no change, more importing make whole supply + 5.5%
New farms construction: reduced
Big farms production: steady or reduced
Less live cattle (heifer) imported
Imported liquid milk 750,000 tons,impacts domestic
market Imported liquid milk: 1.8% of all liquid milk, 3% of UHT milk.
Impacts markets and consumer trend 2016.1-8 423,000 tons,nearly whole year importing last year
+63.4%
2015, 470,000 tons, +43%
03 Trade: liquid milk
2016 production no change, more importing make whole supply + 5.5%
03 Trade: impacting
2016.1-8 423,000 tons, +63.4%
Germany
35%
France
19%
NZ
19%
Australia
11%
Poland
4%
other
12%
Jan – Jun China Liquid Milk Import
(Ton)
Germany France NZ Australia Poland other
03 Trade: impacting
Sino-Euro Railway reduce half of liquid milk transportation time
Outlook:
Direction of
CN dairy
Industry
Developing
04+
04 Outlook: Difficulties of CN Dairy
The defect of our development model begin to show up
• Corporatization and Scaled Dairy Farming Mode: big farming group
company’s production capacity is rigid
It is easy to increase production, but hard to reduce production when
depression
• Their investments are mainly from capital market
Investment sufficient when the industry is good, which is easier for production
capacity expansion
When big farming companies need cash to expand market or increase
inventory in bad situation, there is also investment shortage from capital
market.
Investors and share holders can not bare zero or negative growth even if the
whole industry is not good
04 Outlook: Difficulties of CN Dairy
The defect of our development model begin to show up
• Corporatization and Scaled Dairy Farming Mode:
Higher anti-risk and longer price cycling
In past, Chinese milk cycle is generally 2 year, and low price
will lead to a bigger decline in milk production
Big dairy farming corporations are financially strong. When
raw milk supply is excessive and milk price is lower, they need
more time to adjust production and sometimes reverse growth
04 Outlook: Difficulties of CN Dairy
High-end marketing orientation leads high marketing risk
• High-end dairy products influence consumption
market expansion
• High-end dairy products’ high price leads imported
products more competitive in domestic market
04 Outlook: Difficulties of CN Dairy
Listed farming companies loss in first half 2016
Low price and huge stock: > 400,000 ton milk powder; imported powder +19%;
Farming Company
Sales value
ChangeNet
profitsChange
Sales amount
Change Price Change
Billion¥
%Billion
¥% Ton %
¥/Kg
%
MordenFarming
2.229 -8.54 -5.66 -218.60 476,555 7.20 4.02 -10.86
Shengmu 1.617 16.85 4.02 20.60 278,260 10.66 4.73 -6.32
Yuanshengtai 0.514 -5.05 -1.36 -1,339.41 128,439 9.00 4.01 -12.88
Sino Farm 0.504 119.39 0.66 55.11 107,615 162.11 3.81 -13.42
04 Outlook: hope of CN Dairy
No change of fundamentals of Chinese dairy industry development
No change of consumption market demand
China is still the biggest potential dairy market
Dairy consuming space is big
Primary development strategy is still domestic supply
The dilemma we are facing is the oversupply from
world
04 Outlook: hope of CN Dairy
Farming companies cost reduced in first half 2016
Facing depression, reduce producing cost Yuan/kg raw milk
Farming Company Cost Type 2015 2016 Change %
Yuanshengtai Total Cost 2.85 2.63 -7.78
Sino Farm Total Cost 4.25 3.73 -12.33
Morden Farming Total Cost 3.03 2.71 -10.58
Shengmu (Organic) Total Cost 2.78 2.40 -13.63
Shengmu(Non Organic) Total Cost 2.70 2.46 -9.02
Yuanshengtai Feed Cost 2.21 1.94 -12.09
Sino Farm Feed Cost 2.40 2.28 -4.74
Morden Farming Feed Cost 2.37 2.06 -13.37
04 Outlook: hope of CN Dairy
Lower cattle price; more farm construction investment
Junlebao Dairy builds new 10000 heads farm in Baowei
Huishan Dairy’s project in Jiangsu, 100000 heads in sum
Jiuniu Livestock are constructing a new 10000 heads farm in Shanxi
Many new farms in Heilongjiang are constructing
• Big farming companies are importing live cattle
Jan-Jun 2016, breeding cattle imported is 58287 heads, -
10%
Buyers are big livestock companies Come from Oceania
04 Outlook: hope of CN Dairy
Milk supply decline, it is a matter of time
MoA: in July, herd size decline 10.27% compare same
period last year
Extreme weather and heat stress
Flood and extreme heat sweep central China
MoA: first half of 2016, milk collection -5%
Milk production -40% in some farms in south
04 Outlook: hope of CN Dairy
Milk supply decline, Price recover,
Some local processor begin to collect milk out of their area
Nestle Qingdao: from August 20th, 0.08-0.12 higher Yuan/Kg
Serious milk shortage in Ningxia
price reach 4.2 Yuan/kg (0.6 Euro/Kg)
Main reason: production reduce and demand increase
when it is close to mid-autumn day and National Day
04 Outlook: hope of CN Dairy
In 2020,dairy production reach to 64m tons,
with a growth at 5% per year
Supply Outlook of Raw Milk in China
Chinese MOA turned down the goal of dairy industry 1%
MOA 《Plan of Grain Saving Type Livestock Husbandry(2011-2020)》
goals:
MOA《 Guiding of Improving Herbivorous Livestock Husbandry
Development》 goals:
In 2020, dairy production reach to 41m tons,
with a growth at 1% per year
04 Outlook: Hope of CN Dairy
Per capita consumption of urban households
2012 17.9 Kg; 2020 42.9 Kg; 2030 46.2 Kg
04 Outlook: Hope of CN Dairy
Per capita consumption of urban households
2012 17.9 Kg; 2020 42.9 Kg; 2030 46.2 Kg
Dairy consumption demand in the future
If Per capita consumption of milk achieve the following
standards
Beijing 40Kg Per capita , need 54mil tons , gap 18mil tons
Japan 60Kg Per capita ,need 82mil tons, shortage 45mil tons
How to satisfy?Domestic supply: 36 mil tons, should increase 10 mil tons
Importing supply: 10 mil tons, should increase 10 mil tons
04 Outlook: hope of CN Dairy
National Crop Policy Adjustment:
huge reduction of livestock farming cost
herbivorous animal husbandry area overlay with major crop area.
73% milk from this area
Reaping Hook Bay’
04 Outlook: hope of CN Dairy
National Crop Policy Adjustment:
huge reduction of livestock farming cost
Too much corn with
national supporting price!
policy for corn purchasing and temporary stock :National protection and supporting price: 2000 Yuan /ton
Feedstuff do not get aid
Increase farm land leasing cost
Farmer grow alfalfa, oat hay on waste land, sand land, salty
land and mountain land
Huge price gap between domestic corn and international corn
04 Outlook: hope of CN Dairy
National Crop Policy Adjustment:
huge reduction of livestock farming cost
Corn production: 116 mil ton 2003 225 mil ton 2015 +100 %
Since 2004 area of grain +13.23 mil ha, corn +13mil ha
Too much corn with
national supporting price!
04 Outlook: hope of CN Dairy
National Crop Policy Adjustment:
huge reduction of livestock farming cost
Too much corn with
national supporting price!
State Crop aid: average 1800Yuan/ha in 2016Grain and Cereal direct aid:
Depends on hectare, total 14.05 billion Yuan. Too few.
General direct aidDepends on price change of diesel, fertilizer, pestcide
Fund of 107.1 billion Yuan
Certified seed aidDepends on better crop variety farmer planting
Fund of 20.35 billion Yuan
04 Outlook: hope of CN Dairy
National Crop Policy Adjustment:
huge reduction of livestock farming cost
CN
US
Big price gap leads much
more corn import from US.
Making huge stock of corn
04 Outlook: hope of CN Dairy
National Crop Policy Adjustment:
huge reduction of livestock farming cost
Too much corn with
national supporting price!
Consequences Serious excess of corn Yield 225 mil ton、consumption 180 mil ton. 60% used as feed
Corn and its substitution imported 55 mil ton, 30% of demand
Importing big amount of DDGS, corn and hay
Shortage of high quality forage, 1.2 mil ton imported
By July, corn stock 260 mil ton, 50% of all grain stock Inventory cost 65 billion Yuan
04 Outlook: hope of CN Dairy
National Crop Policy Adjustment:
huge reduce of livestock farming cost
China stop policy of national corn intervention, price
depends on marketUS Corn F.O. price: 1500 Y/ton
Domestic corn price: 2080 Y/ton, -30%
Policy of ‘Alter Grain to Feed’ in ‘Reaping Hook Bay’ :
less cost, higher efficiency2020,reduce corn plantation area 3 million ha
2020,increase feedstuff plantation area to 6.5 million ha
Silage corn 1.7 million ha; alfalfa 2.3 million ha
04 Outlook: hope of CN Dairy
National Crop Policy Adjustment:
huge reduce of livestock farming cost
National aid unchanged and cancel protection price Separate corn price factor from aid
Domestic price integrate with international price, -30% to1700
In Changchun, 1250 Yuan/ha; in Harbin, 1100 Yuan/ha
Reduction of land leasing cost From 9000-15000 y/ha to 4500-12000 y/ha
Reduce waste land of foodstuff planation, increase quality
of domestic hay
04 Outlook: hope of CN Dairy
Opportunity from Russia Dairy
Russia import dairy converted to milk 7m tons every year
Mainly are Cheese, Butter, pure milk and whey powder
Liquid milk comes from Belarus and the other CIS countries
Cheese came from EU before2013 2014 2014.1-10 2015.1-10 %Change
Pure milk 27.24 30.00 26.24 20.41 -22.22
Cheese 44.04 31.61 27.29 16.35 -40.08Butter 14.56 15.04 12.79 7.83 -38.75
Milk powder 14.72 13.22 9.94 11.60 16.66
Whey 14.32 12.63 10.86 12.06 11.14
Covert to milk 695.00 488.00 410 295 -28
04 Outlook: hope of CN Dairy
Opportunity from Russia Dairy
The demand of Russia is existing, but the imports from
China is 0 The cost of producing must be reconsidered. The ban is
temporary. Once Russia begin to import from EU and US again,
how can we get into this competition?
According to GTA, Russia have not imported any dairy products from China
04 Outlook: hope of CN Dairy
Opportunity from Russia Dairy
AustAsia built plants with Russia FOOD UNION produce fresh cheese in China and export to Russia, processing milk 800
tons /day
FOOD UNION is the biggest cheese importer and dairy company in Latvia
Zhongding Farming built new Farms at Heilongjiang Group farms with 100K heads of cows, get ready for exporting dairy to
Russia
Qizhi Dairy and Chia Tai build farms and a processing plant at Russia The first plan is to build three farm groups with 80k heads of cows and a
dairy processing plant.
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感谢聆听