In recent years, more and more Chinese dairy enterprises have been looking abroad to establish factories outside of China. By integrating high-quality milk, technology and management, Chinese dairy companies have been able to perfect the industry chain and globalize their brands. However, the Chinese dairy industry has seen mounting losses since last year.
Chinese milk prices have been low since the second half of 2015. According to the Ministry of Agriculture, the average price of fresh milk is 3.39 RMB/kilo in 10 major milk producing regions, down 15.2 percent from 2014. Besides the low prices, some dairy processers have also instated a fresh milk collection quota or simply rejected collection entirely. For example, they may choose one day per week not to collect fresh milk, meaning that breeders have to deal with the extra milk themselves, which generally results in wasted product.
Given these lower prices and shrinking collection volume, many cow breeders have begun to reduce the number of their dairy cows. In 2011, many small-scale breeders left the industry; between 2012 and 2014, small and medium-sized farms began to withdraw from the market; since last year, even some large-scale farms have been unable to keep up with the losses. Modern Farming, the largest cow breeding enterprise in China, has about 220,000 cows. It has increased its slaughter rate for old and silk cows by 10 to 20 percent in order to cut costs.
Dairy processing companies have also been affected by the crisis. Their largest problem has been the surge of milk powder. Since early 2015, the 10 largest dairy processing enterprises in China have collected more fresh milk than they need so that they would have milk to turn into milk powder. However, the cost of turning 1 ton of milk into powder is 36,000 yuan, but the price of 1 ton of powder is only 16,000 yuan, which unfortunately comes out to a loss of 20,000 yuan for each 1-ton batch.