China’s dairy sector has experienced significant growth since the 1990s, as a consequence of economic and social changes. Despite a high prevalence of lactose intolerance among the Chinese population, dairy consumption has increased, and China's dairy industry is undergoing significant transformation, driven by evolving consumer demands, innovative strategies and sustainability requirements.
Innovation in Dairy Products
To enhance consumer experience and attract younger generations, innovation is at the forefront of China's dairy industry. Companies are developing products that satisfy specific dietary needs, such as lactose-free milk, high-protein yogurt, and functional dairy beverages enriched with vitamins and minerals. This trend is driven by increasing consumer awareness of healthy nutrition and by Chinese government’s efforts to improve public health through the promotion of nutritional benefits of dairy products. After the Melamine Incident in 2008, restoring consumer trust and guaranteeing milk safety urged the implementation of stricter rules and adopting new approaches including innovative packaging and marketing strategies, which contributed to the growth in the dairy sector.
Focus on Food Security
Ensuring food security is a critical focus for China's dairy industry. Efforts are being made to consolidate and increase national dairy production to meet growing demand. This includes investments in modern dairy farms and improving supply chain efficiency. The government is implementing policies to support dairy farmers and encourage sustainable practices. Subsidies and incentives are provided to farmers who adopt eco-friendly approaches and technologies. By securing a stable supply of high-quality dairy products and extending the production areas in different regions in China, the industry aims to contribute to the overall food security of the nation. For 2023, FAO estimated that milk production in China would increase by 6.5 %, indicating high yielding herds and enhanced productivity, mainly in large-scale farms. China’s “Greater Food Strategy” aims to improve food security and sustainability by diversifying sources of calories and protein. This strategy involves promoting sustainable practices, technological innovation, and improved farm management to boost productivity and self-sufficiency while minimizing environmental impact.
Technological innovation
New technologies are revolutionizing dairy farming in China, enhancing productivity and efficiency. Automated milking systems, precision farming and data analytics are becoming standard practices. These technologies help optimize milk production, improve animal health, and reduce labor costs. Precision farming techniques allow improved herd management, ensuring optimal nutrition and health. Automated milking systems enable higher yields and better animal welfare. Also, genetic research and breeding are contributing to healthier and more productive dairy herds.
Sustainability
Sustainability is a key focus in China's dairy industry, aligning with the country's climate goals to achieve carbon neutrality by 2060. Big dairy producers are adopting sustainable practices to minimize their environmental footprint. This includes reducing greenhouse gas emissions, improving waste management and optimizing water usage. The integration of Environmental, Social, and Governance (ESG) principles, still a relatively new concept in China, is however becoming more prevalent, with some large dairy companies using comprehensive data to enhance green development and transparency. Government initiatives play an important role especially among small farms, with strategies focusing on research and development, stricter regulations for food safety and promoting sustainable practices. Climate change adaptation efforts include addressing the impact of heat stress on cattle and water shortages making the dairy supply chain more resilient. Innovations in feed efficiency and manure management are crucial in these efforts that would also enhance the long-term viability and sustainability of the dairy industry.
Global market shaping
As the world’s largest importer of dairy products, China’s demand has shaped global dairy trade dynamics. Between 2020 and 2022, China’s domestic milk and milk products output grew from 36.9 to 40.7 million tons liquid milk equivalent (LME), reflecting a robust expansion. However, despite this growth, in 2022 China continued being responsible for roughly 25% of global whole milk powder imports and as the 12th global importer of cheese. The trends indicate that China’s influence on global dairy markets will continue to grow, with its import needs estimated to 16% LME of the global imports in 2023 (Figure 1), playing a critical role in shaping international dairy trade patterns. This highlights China’s pivotal position in the global dairy industry and its ongoing impact on market behavior. Also, Yili and Mengniu groups which are among the world top 10 dairy processing companies, are implementing shifts towards premium products which will contribute to adjusting milk price and retail sales.
Figure 1: China milk and milk products imports 2017 - 2023 (based on FAO data)
Take home message
The "greater food" strategy is a transformative approach that aligns with the evolving trends in China's dairy industry. By emphasizing sustainability, technological innovation, diversification in dairy products and a focus on food security, China is positioning its dairy sector for a sustainable and prosperous future. This dynamic market offers numerous opportunities for increasing collaboration, expansion and innovation.
References
FAO. 2023. Dairy Market Review – Emerging trends and outlook in 2023. Rome
FAO. 2024. Dairy Market Review: Overview of global market developments in 2023. Rome
Hu,K.;Sun,H.;Zhou,T. (2023).The Current Situation and Future Trends of China's Dairy Industry.Advances in Economics, Management and Political Sciences,37,74-80. https://doi.org/10.54254/2754-1169/37/20231843
Yi, J., Gerbens-Leenes, P. W., & Guzmán-Luna, P. (2023). Water, land and carbon footprints of Chinese dairy in the past and future. Sustainable Production and Consumption, 38, 186–198. https://doi.org/https://doi.org/10.1016/j.spc.2023.04.004
Yin, H., Fang, S. E., Mirosa, M., & Kearney, T. (2023). Dairy purchase behaviors: Increasing understanding of Chinese consumers using a consumer involvement segmentation approach. Journal of Dairy Science, 106(12), 8523–8537. https://doi.org/https://doi.org/10.3168/jds.2022-22843
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