Cheaper production costs and higher quality products have led foreign companies to dominate most Chinese dairy markets, but high margins and booming demand have put local firms in pole position in the yoghurt market.
Having touched US$55bn last year, the dairy market is now second only to America.
Indeed, Chinese dairy demand has been growing faster than domestic supply, which is forecast to drop by 5% over the next three years, and a further 5% until 2025, according to China’s agriculture ministry. In 2016, the country was only able to cover 75% of domestic dairy demand.
Meanwhile, premium milk products such as yoghurt have seen the biggest demand growth as a growing base of middle-class consumers start choosing higher-quality products.
Domestically, China has been ahead of the West for some time, with just three domestic players taking a 70% share of the national market.
According to the Financial Times, revenues for fermented dairy products soon stand to surpass regular milk revenues for the first time. Milk sales are forecast to increase at around 4% this year, whereas yoghurt’s fortunes are in line with 18% growth.
Moreover, total yoghurt sales rose by over 108% from 2013-17, whereas milk sales increased by just 18% over the same period.
The three main players, Yili, Mengniu, and Bright Dairy, have all launched new yoghurt products in 2017 to expand their share in the market. Many of these belong to the premium segment, increasing the choice for consumers who are becoming more savvy about quality and health.
Meanwhile, dairy manufacturers are being tempted by yoghurt margins that are now almost double those of plain milk, leading to robust growth in terms of volume and value.
Still, domestic players are facing increasing competitive pressure from imports, regional firms and start-ups, as well as other food and beverage companies that still dominate the game.
Dairy has been a lifesaver for several F&B manufacturers as they struggle to cope with a slowdown in demand and declining prices due to oversupply.
But they still struggle to compete with imports, which grew by about 20% year on year in 2016, based on volume. These dropped, though, to 12% in the last year, leading to more domestic chops.
In 2015, China imported 10,274 tonnes of yoghurt and buttermilk, rising to nearly 21,000 tonnes in 2016. Of this, more than 15,000 came from yoghurt alone, representing an increase of 104%.
Yet the import share of yoghurt and buttermilk accounted for just 0.9% of overall dairy imports in 2016, due to the strong market share of domestic players.
Overseas companies have still to get a decent share of China’s highly profitable and booming yoghurt market.
As demand grows faster than supply, manufacturers should focus on the Chinese market in the short-term and launch their own premium yoghurt products to participate to compete for the middle-class market, according to CCM, a China-based market analyst.
Source: RJ Whitehead, Food Navigator Asia