China Dairy Farm Investment Overview

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    Dr. Jackie Xiong

    • China raw milk demand will continue to grow in coming 5 years, which cannot be fully met by local production.

    china dairy industry over past ten years - Top manufacturer for 13 Years | YYK Barn

    China-dairy-industry-overview-over-past years

    Data Source: China Statistics Bureau. Frost & Sullivan Research

    Between 1980 and 2020, China raw milk production saw 2400% increase from 1.4million tonnes to 34.4million tonnes. China is currently one of the biggest dairy producer across the world. However, domestic production cannot meet the total demand, which stands at 53million tonnes in 2020 and expect to reach 63 million tons as of 2025. The gap is filled by raw milk import, which is usually 30% cheaper than local product.

    Temperature and proximity to forage supply are key factors decide dairy farm distribution. As dairy cow prefer moderate weather in NL40-50 degree, Northern China dominates the local milk production.

    Province % of total raw milk production
    Inner Mongolia 18%
    Heilongjiang 15%
    Hebei 13%
    Shandong 7%
    Xinjiang 7%

    As Chinese per capita consumption of dairy only stands at 40.7kg, 16.4% and 17.9% of EU and US level, we expect the demand increase momentum will remain in foreseeable future.

    • Dairy farm consolidation pick up speed since 2017.

    Dairy farms number reduce and unit production rate increase dominate the global market. In US, 2007-2017 recorded total dairy farm number shrink from 200 thousand to 40 thousand, while total raw milk output increased from 60 million tonnes to 95 million tonnes due to consolidation. The consolidation also happened in China as shown below.

    China Dairy Farm size over past years


    The driving forces of consolidation include the government stricter food safety requirement, large dairy processors’ tendency of procurement from large farm or associated farm etc. However, dairy farm sector is still highly segmented compared with EU and US, for instance, average cows per farm in Germany and US stands at 64 and 251 respectively in 2018, while china only recorded 16. However, the consolidation speed in China is unprecedented, to Year2025, dairy cow raised by large scaled farms (over 1000 cows) will accounts for over 55% of total.

    china dairy farm size and scale - Top manufacturer for 13 Years | YYK Barn



    • China new dairy farm investment gain momentum

    New construction in China requires engineering planning permit from China Government, China Government disclosed incremental farm construction plan accommodation 2.5m daiy cows, with total investment at RMB4.5b.

    As of 2021, new put-into-use dairy farms are able to accommodate 980k cattle, the size distribution is as follows:

    China dairy farm investment gain momentum - Top manufacturer for 13 Years | YYK Barn


    83% new dairy farms in 2021 has dairy cow over 5000, 62% has dairy cow over10,000. Incremental 5.4million tonnes annual raw milk output will be in place when all projects finished, accounting for 15% of existing milk output. Over 80% new projects locate in Northern China. Large scale cow import is on horizon. It is estimated that in coming 2 years, China will import 400,000 cows from overseas as china local calf supply is insufficient.

    The chief sponsor of above investment surge include:

    • Vertical expansion of dairy processing company. 

    China has huge dairy processing conglomerates such as Yili Group, Mengniu Group, Bright Dairy Group, etc. Top 5 dairy companies account for 73.5% dairy processing market. To guarantee stable raw milk supply, above processor proactively grow its own dairy farm. For instance, in May2020, Yili Group kicked off its dairy hub construction in XingAn, Inner Mongolia, which contains 20 dairy farms, each accommodate over 10,000 cows, total new added herd reach 360,000. A similar sized project was kicked off by Yili Group in Tongliao, Inner Mongolia at the same time. Other major players, like Mengniu, Bright Dairy also expand rapidly in dairy farm.

    china dairy industry top companies - Top manufacturer for 13 Years | YYK Barn


    Source: Rabo Bank 2021

    • Dairy Farm operating companies also pick up speed.

    To achieve low milk cost by scale of economy, and meet dairy processors requirement (Mengniu and Yili acquired No. 1 and No.2 dairy farm operator as their affiliated company), cattle raising companies also invested heavily in new dairy farm projects.  Modern Farming currently has 26 farms, and they planned to further kick off another 20 dairy farms and double their cow herds.

    To compete, Youran Dairy will invest USD350m in new farm construction, funded by IPO in HKSE.

    2019 Company Milk Output
    kilo ton
    Total Cattle
    # in thou.
    Dairy Cow
    # in thou.
    ton / cow per Year
    1 Modern Farming* 1390 233 135 10.6
    2 Youran Dairy** 830 135 72 11.5
    3 Huishan Dairy 700 140 90 8
    4 SM Organic 642 106 67 9.6
    5 Green Fields 565 86 45 12.6

    Note: * controlled by Mengniu, ** controlled by Yili

    Source: YYK Barn Tech Research team.

    • Opportunity to the world

    • Surge in forage import, especially alfalfa hay:

    Alfalfa hey is key components in TMR for China dairy cows. Due to relatively lower quality (protein content, fiber, etc) as compared to that from US, CAN, etc. China heavily relies on import. US solo accounts for one third of China yearly consumption. Along with new project and herd in place. The demand will keep growing.

    china Alfalfa hay trading - Top manufacturer for 13 Years | YYK Barn


    Data source: MOA China

    • Surge in cow import.

    The heavy investment bring booming import requirement for cow. Jan-May2021 saw total cattle import of 161,000, 40.6% yoy growth, New Zealand accounted for 42%, Uruguay accounted for 33.4%, and AUS accounted for 22.2% (decrease due to cooling bilateral relationship). We predict the momentum will go on in next year.

    • Surge in frozen semen

    China cattle raising industry heavily rely on frozen semen from US, Germany, AUS and NZ. Total import amount surged from USD24.77m in 2016 to USD41.98m in 2019. 1H2020 saw yoy growth of 62.9% to USD23m. YYK Barn forecast a lasting momentum in coming years.   

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