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What is missing in China's dairy industry?

2019-10-8 10:10:51 Comments:0 Views:1187 category:SDDDC News

Most leading domestic dairy companies released their semiannual reports recently, presenting their gratifying performance to the market.

The two dairy giants, Yili Dairy Co., Ltd. (hereafter, Yili) and Mengniu Dairy Co., Ltd. (hereafter, Mengniu), achieved significant growth in both turnover and net profit. Yili earned 45.071 billion Yuan of sales revenue in the first half year of 2019 with a net profit of 3.798 billion Yuan. Mengniu’s sales revenue arrived at 39.8572 billion Yuan and net profit, 2.0769 billion Yuan, increasing by 15.6% and by 33.0% respectively on a year-on-year basis. Other domestic dairy companies, such as Brightdairy Co., Ltd., Beijing Sanyuan Food Co., Ltd., New Hope Dairy Co., Ltd. and Terun Dairy Co., Ltd,, all achieved different levels of growth.

Large upstream dairy farming groups represented by Modern Farming Group Co., Ltd. (hereafter, Modern Farming) also presented decent financial reports. Modern Farming’s net profit of the first half year of 2019 shot up by 265.2% compared to last year, reaching 125 million Yuan. China Shengmu Dairy Co., Ltd. (hereafter, Shengmu)’s interim net loss was 75.3 million Yuan, reducing significantly by 93.66%, and its farming business turned from deficit to profit and achieved a net income of 32.2 million Yuan. 51% of Shengmu’s equity has been sold and transferred to Mengniu in the first half of 2019. Zhongdi Dairy Group Co., Ltd. earned a gross income of 257 million Yuan with a year-on-year growth of 7.8%, the gross income of its dairy farming business surging by 36.4%.

A close look at the whole dairy industry chain from dairy farming to dairy products processing reveals that one year after the State Council’s issue of The Instruction on Promoting the Revitalization of the Dairy Industry and Securing the Quality Safety of Dairy Products in June 2018, the purchasing price of raw milk increased by different levels in most regions, and the sales revenue of leading dairy companies hit a new height in the first half year of 2019. The dairy industry’s performance reflected in the semiannual financial reports recently released is indeed worthy of approval.

After 10 years of fast development, China’s dairy industry has come to the forefront in the world in terms of dairy farming and processing equipment and technology, with numerous remarkable achievements. However, the shift of international trade pattern and the slowdown of domestic economic growth exposed many unsolved and inescapable problems that domestic dairy industry is facing now: the high production cost of raw milk, the weakness of consumer market of dairy products, the tardiness of building a system that connects the whole dairy industry chain, the environmental pressure that results from the disconnection between dairy farming and crop farming, the excessive dependence on imported technologies and equipment, etc. Under such background, we need to reflect on how the dairy industry should develop in the following half year and in further future. How should we understand and undertake the tasks set at the National Meeting on Promoting the Revitalization of the Dairy Industry? How can we actively develop family dairy farms, build and boost dairy farmers’ cooperatives, support qualified farmers and cooperatives to participate in dairy products’ processing and sale, establish a sound practice that allows farmers to share the benefits of the development of dairy industry, and safeguard the dairy farmers’ interest? With these questions, China Dairy interviewed Mr. James Su, Secretary-General of Sino-Dutch Dairy Development Center (hereafter, SDDDC), and Executive Director of East Rock Farm Technologies Co., Ltd.

Mr. James Su, Secretary-General of Sino-Dutch Dairy Development Center, and Executive Director of East Rock Farm Technologies Co., Ltd.

Viewing China’s Dairy Industry from Three Angles

First Angle: Secretary-General of SDDDC

 “I would like to view our domestic dairy industry from three different angles. First I want to read the industry from the perspective of a member of SDDDC. I joined SDDDC as a member about one year ago, and this year of working in the Center allows me to experience more deeply the differences between the dairy industries in the Netherlands and in China, and to understand more thoroughly how different roles contribute to the industry. I myself participated in the fifth training trip to the Netherlands in April 2015. All those experiences gave me the unique chance to observe the dairy industry more closely.”

Second Angle: Executive Director of East Rock Farm Technologies Co., Ltd.

 “Secondly I would like to view the dairy industry from the perspective of the Executive Director of East Rock Farm Technologies Co., Ltd. For more than ten years in the past, East Rock has been committed to introducing technology and equipment for intensive dairy farming into China, which gives us considerable experiences. If you look closely into the Dutch way and the American way of developing dairy industry, you will see that the Dutch way can be compared to a French dish while the American way is more like a McDonald’s Share Box. The Dutch way takes an individual approach and focuses on each and every cow’s wellbeing, while the American model takes a herd approach and puts the group’s welfare in the first place. The farming technologies and equipment used in these two countries overlap in some area but differentiate from each other in other areas. If we compare our domestic dairy industry with that of the Netherlands and the United States, we can better understand many problems we are now facing.”

Fifth SDDDC Training Trip to the Netherlands (April 2015). By September 2019, 23 training trips in total have been organized.

Third Angle: Loyal Consumer of Dairy Products

 “Finally I would like to view the dairy industry from the perspective of a consumer. Three generations in my family are all loyal milk consumers. My child, particularly, drinks at least four cartons of milk—that’s no less than one liter—every day. At first I thought it was just my child, but later I found that her classmates and friends, when visited us, all opted to drink milk when they were thirsty. This might reflect the consumption habit of the younger generation in our country, and it also gives me a new standpoint when I think about the dairy industry.”

Three Reflections for the Revitalization of China’s Dairy Industry

 “The dairy industry has flourished in the past decade, but we have to reflect on our achievements in a rational and objective way.” “From the macro perspective, the whole industry has explored its way to development with Chinese characteristics, and the dairy products are becoming richer. More specifically, the technologies and equipment imported to China have reached the top level in the world. Why would revitalization of dairy industry be proposed again in the D20 meeting under such background, when the dairy industry has made a great leap forward in the past decade? And what is to be revitalized? I believe that the ideas of developing family farms that Vice Premier Hu Chunhua put forward at the meeting set a clear goal for the development of our domestic dairy industry.”

Li Shengli, Chief Scientist of the National Dairy Industry and Technology System/Director of SDDDC, with Xue Wenjun, owner of a family farm, and his family

“Why are family farms able to not only survive and thrive in the Netherlands, but also make the country the second largest exporter of agricultural products and a leading power of dairy industry in the world in the sense of innovation and development? The following are three reflections that I believe are worth thinking about.

I. Sustainable Ecosystem of the Industry

 “There are only less than 20 thousand family farms in the Netherlands, and yet they are able to make the country one of the strongest dairy powers in the world. Why? I think the reason behind it is a sustainable industrial ecosystem that allows all the practitioners to survive and thrive.”

 “When I joined the training trip to the Netherlands in 2015, my first impression of the dairy industry in the country was that the farm owners were working for others—for the processing factories, for the banks and financial institutions, for feed companies, breeding companies and other chain links of the industry chain. However, as I learned more, I realized that this was not a precise description of the relationship between the dairy farm owners and other players in the industry. In the ecosystem of Dutch dairy industry there is no superiority over or inferiority to others of any individual or company, whether they are in upstream of the industry chain or not. Farm owners are the ones who initiate the value chain of the industry. Therefore, it may also be reasonable if we view the breeding companies, the banks and other service suppliers as being working for the farm owners. More precisely, I think it is a mutually dependent, win-win relationship, in which every party respects and communicates with each other on the basis of equality. This is the most important force that drives the Dutch dairy industry to develop sustainably over the past few centuries since 1400s.”

 “Back home, we are in the process of leaping forward and creating our own industrial ecosystem. Compared with the Netherlands, the dairy industrial ecosystem that is forming in our country tends to follow the law of the jungle. The players in the industry let others run their own course and only the fittest can survive, which is hardly a sustainable ecosystem for the development of dairy industry. If we want to revitalize the industry, we have to face the challenge of sustainability. To solve this problem is vital for the revitalization of the dairy industry.”

 “I believe that in this new age, the government is able to lead and design for the industry, which will support the establishment of a more sustainable ecosystem and maintain its balance. Only in this way can the practitioners of the industry avoid panic or anxiety.”

 “Besides, the leading companies in the dairy industry should take into account their social and industrial responsibilities. In the past, the dairy industry experienced mostly the capital-driven campaign-style development, which, to some extent, shows the hard power of our country’s economy. However, the development of dairy industry is not a hundred-meter dash, but a long-distance running, a Marathon even. Therefore, the ‘soft power’, the reserves, is what determines the final results, but from the released data we can see that the total dairy herd in China has dropped from the previous period and from last year, and that many legendary figures in the dairy industry have been forced to leave this field. The industry is losing its reserves, because the current ecosystem does not allow the farmers to focus on farming without worrying over other things. If there is one thing that China’s dairy industry needs most urgently, it is definitely a sustainable industrial ecosystem!”

II. Innovation Capacity and Intellectual Property Protection

 “Over more than 10 years in the past, China’s dairy industry has almost incorporated all the most advanced technologies and products into its own development. However, what have we really obtained? Did we merely get the fish or have we also learnt the skills to fish?”

 “The core problem is the lack of innovation and intellectual property protection. In China when people talk about innovation, most of the time it is just modification or even duplication of other people’s mature products. This is definitely not innovation.”

 “How does the Netherlands’ dairy industry foster innovation? There is an important link in their industry chain—scientific research institutions. The combined efforts of those institutions and dairy companies generate scientific research results that will then be converted into new products and solutions with the supports from the government and the industry. In China, however, such a mechanism that allows the scientific research institutions and the industry to communicate and share knowledge and experiences more effectively has not been built yet, so the institutions are not able to facilitate the innovation of the industry. Moreover, in an environment where there is no strong awareness or sound legal system to protect intellectual property, the achievements of innovation can hardly be well protected.”

“Take dairy farms’ environmental protection problem as an example. Each and every dairy farm demands considerable land to absorb the waste water they produce, and yet the reality is that the available land for dairy farms is very limited in our country. Therefore, reducing the waste water by all means is essential for the environmental protection. The amount of manure the cows produce—about 67 liters per cow per day—cannot be reduced, so lessening the use of water in the facilities is key to cut down the total amount of waste water the farms produce. For most domestic dairy farms, the heat stress starts from mid-March to late September or early October. Whether to use cooling water to diminish the heat stress during this half year is a dilemma for many farming companies. If a farm adopts the traditional spray system to control the heat stress, the amount of waste water produced in this period of time will reach to 55 tons per cow on average, which will impose great pressure on the farm’s manure system and the environment. This is a tricky problem of the industry. To solve this problem, East Rock invested a lot of funds and time on the research on innovative precise spray system, which has been put into trial use in JinYinDao Farm of Beijing Capital Agribusiness Group and Ma’anshan Farm of Modern Farming. Our test results show that this precise spray system can reduce water usage by 65% and effectively ease the decrease of milk yield, balancing between saving water and diminishing heat stress. However, such a meaningful innovation that helps to solve a universal problem in the industry did not receive much support from the government grants or industrial public funds, but was developed solely on the company’s own resources.”

 “As for the intellectual property protection, East Rock introduced Cyclone fans into domestic market in August 2009 and then devoted ten years to upgrade and promote the products, only to find numerous unauthorized copies of our Cyclone fans in the market when the customers finally accept them and recognize their effectiveness under East Rock’s great efforts. When we tried to protect our intellectual property, we encountered some unpleasant, unreasonable obstacles. This reveals that in domestic dairy industrial ecosystem, there is no mechanism or rules to protect intellectual property.”

 “We are facing a great opportunity to surpass other dairy powers in terms of technological innovation, as dairy industries in North America and Europe have reached a plateau where the driving forces for innovation have weakened and the demand for improvement is not as strong as it used to be. We developed the precise spray system because of the pressure from environmental protection, but this innovation is not only beneficial to us. In fact, it may have great potential in many emerging dairy powers, for example, Middle East countries, where many dairy farms use costly desalinated sea water in their facilities. Even in the United States, some places such as California where pollution from dairy farms has become a big trouble, may need this innovative system as well. In this sense, we have come to the forefront in the technological innovation in this field.”

Diagram of Precise Spray System on Farm

“This kind of innovation is essentially driven by market economy. Enterprises are willing to invest on research and development even in this relatively primitive ecosystem in our dairy industry, so long as there is market demand. However, if the innovation can become a common will of the whole industry or even the whole country, it will certainly further boost the dairy industry’s development, but it will only become possible if there is a sustainable ecosystem to underpin the innovation.”

III. Communication Capacity

 “From Grass to Glass, how do you convince the customers of your idea? This is a question a journalist from Xinhua News Agency raised to Atze Schaap, Global Director of Dairy Development, Royal FrieslandCampina N.V., on SDDDC’s fourth anniversary celebration in 2017.”

 “This was not achieved overnight. It is not that I tell them today and they will immediately take it tomorrow. For about a hundred years, we insist on doing right things, sending right, reliable messages. This is why the customers will accept our ideas without doubt when we tell them, because we have never lied to them. This communication method is very important.”

Atze Schaap, Global Director of Dairy Development, Royal FrieslandCampina N.V.

 “This answer from Mr. Atze Schaap remains fresh in my memory. In contrast, domestic dairy companies usually adopt commercial advertisements as the major means of communication, aiming at boosting the consumption. Whether by placing advertisements directly or by sponsoring activities and events, the companies ‘communicate’ with customers only in order to stimulate instant growth of consumption. ”

 “Fairly speaking, at the early stage or at the rapid growth phase of an industry’s development, it is understandable if a company adopt such a strategy, but when the industry developed to a certain stage when the market can no longer digest all the production, a single company’s expansion will only lead to monopoly rather than growth of the industry. Therefore, the whole industry should work together to maintain and broaden the consumer market by honestly and sincerely communicating with the consumers. This is a social responsibility that all companies should shoulder.”

Chang Yi, Deputy General Manager of Beijing Capital Agribusiness Group and President of Beijing Dairy Association, interpreting the spirit of Beijing’s dairy industry

 “The good communication embodied in the first Beijing Milk Culture Festival set an excellent example for the industry. The festival delved into the spiritual wealth of Beijing’s dairy industry, passed credible and understandable dairy knowledge to the consumers, built a platform for the dairy companies and the consumers to effectively communicate with each other on the basis of mutual trust, and allowed more children and their families to participate in the activities. In this way the festival not only won the consumers’ trust, but also helped to lift consumer confidence. This, in fact, is not the responsibility of any single company or any individual, but the responsibility of the entire industry.”

Dairy expert Professor Cao Zhijun sharing dairy knowledge with consumers in Beijing Milk Culture Festival

 “As for the communication capacity, the industry may draw on the experiences of SDDDC. So far SDDDC have five partners from the Dutch side, including Wageningen University & Research, Royal FrieslandCampina N.V., CRV Breeding Company, Qlip Testing Company and Rabobank Group, which are academic institution, dairy company, service supplier and financial institution respectively. After I joined SDDDC, I once asked those partners why they decided to participated in this joint effort, and they answered me that they wanted to get an ‘entrance ticket’. SDDDC provides a channel and a platform for them to voluntarily and actively communicate with the dairy industry and market in China, to spread their idea of From Grass to Glass.”

 “On the Chinese side, after China Agricultural University, many influential national or regional dairy companies such as Yili, Nanjing Weigang Dairy Co., Ltd, Henan Huahuaniu Dairy Co., Ltd and Yunnan Niuniu Animal Husbandry Co., Ltd, all joined SDDDC one after another. Beijing Eastern Bell Technology Group, as a leading service supplier for the entire ruminant farming industry chain, was among the first partners of the Center. But the partners on the Chinese side should work more actively and let their voice heard in the operation of this international platform. Domestic dairy companies should shoulder equal responsibility as Royal FrieslandCampina N.V. and other leading Dutch dairy companies do, to build together this platform of sharing knowledge and experiences.”

Partners of SDDDC sharing their predictions of the future of dairy industry on fifth anniversary celebration of SDDDC

“In comparison with the global dairy industry, China’s dairy industry needs to improve its soft power by upgrading its communication strategy, rather than to merely improve its hard power by increasing sales and profits. Financial reports are only for the investors and shareholders, but besides pursuing financial success, the companies should also take their social responsibility to exert positive influences on the future of the world and the human beings. Better communication capacity is essential for lifting consumer confidence, increasing consumption of dairy products, and extending a brand’s influence. This is what China’s dairy industry is lack of in comparison with its counterpart in the Netherlands.” 

To Understand the Revitalization of Dairy Industry at a New Height

 “The great progress that China’s dairy industry has made over the past decade needs to be fully recognized. This time when we talk about revitalization, its meaning is different from when it was first proposed in 2008—it is a revitalization at a new height. The current total herd in China is slightly lower than that of 2008, but after withstanding the tests over the past ten years, the dairy farms and their cows and teams are of much higher quality than ten years ago. This is our achievement.”

 “Therefore, this time when we talk about revitalization, our target should be the two strongest dairy powers in the world: one is the power of quantity (the United States) and the other is the power of industrial strength (the Netherlands). In comparison with them, we need to pay more attention to issues such as industrial ecosystem, innovation, intellectual property protection, and communication capacity. We need to organize and hold conferences and events that are more meaningful, more valuable in the sense that they can help to unite the thinking of the practitioners in the industry. Only in this way can China’s dairy industry move forward, can we fill our glass with our own milk, and only in this way can we fulfill our mission of a healthier China and a better life for all Chinese.”




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