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China's dairy industry has gone through nearly half a century of wind and rain, after more than a decade of rapid development and refinement, China's dairy industry has been developed from a "weak industry" into a "sunrise industry", and China has entered the ranks of the world's leading dairy countries from a "milk-poor" country to a major country in the world. China has developed from a "weak industry" to a "sunrise industry", and China has also entered the ranks of the world's major dairy countries from a "milk-poor" country. With the changes in people's living standards and dietary structure, people's concern for nutrition and health has deepened. When we walk into the supermarket, dairy products in a wide range of cabinets, a full range of colors and varieties. Dairy products have become the necessary food for people's life after grain, meat and aquatic products, and the huge consumption base of 1.3 billion people has provided a constant impetus for the development of China's dairy industry. Invited to attend the tenth anniversary of the China Dairy Industry Association General Assembly of the French Counselor Domenic Guigang praised: "in the past ten years, China's dairy industry in the development of an amazing speed, has entered the world's 'Dairy Powers Club', and is attracting the world's attention. "

I. Industry Overview

1. Industry Overview

The overall sales of the country in 2003~2004 was a continuing trend of growth (Fig. 1), non-food sales slowed down compared with 2002~2003, and food/beverage was a significant increase, from 4% to 11%.

Figure 1: Growth rate of national food and non-food sales

With the development of the dairy industry, China's milk production has also increased. in the first quarter of 2005, China's milk production increased by more than 25% year-on-year; however, compared with this, the price of milk increased by a modest 3.3%.

The gap between China's milk consumption and the world's can be visualized in Figure 2. Asia's per capita annual consumption of dairy products 40 kilograms, the world's per capita 100 kilograms, per capita milk consumption in developing countries also amounted to 30 kilograms, 200 kilograms per capita in developed countries, while China is only about 19 kilograms, only one-fifth of the world's average, about one-fifth of the Taiwan and Japan, even compared to developing countries there is an obvious gap. This is related to the Chinese people's long-standing dietary habits and their knowledge of milk. But on the other hand, it also shows that China's dairy industry still has a lot of room for development.

Figure 2 Comparison of annual consumption of dairy products

The development of China's dairy industry in recent years has been very rapid. The past ten years have been the decade with the most new construction, expansion and technological transformation projects in China's dairy products industry, and the equipment and technology level of large and medium-sized enterprises has improved significantly, reaching or approaching the world's advanced level. Especially the large-scale backbone enterprises representing the mainstream power of China's dairy industry, the level of technology and equipment has reached the international advanced level. the growth rate of 1998~2004 were more than 20%.

In 2004, the output of dairy products was 23.68 million tons, with a growth rate of 25%, which was 2.5 times higher than that of ten years ago, and the per capita milk consumption reached 18.2 kilograms, and the output of dairy products amounted to 9.49 million tons, which was 8.0 times higher than that of ten years ago, among which, the output of liquid milk was 14.4 times higher; and the total output value of the dairy industry amounted to 66.3 billion yuan, which was 7.5 times higher than that of ten years ago; The per capita consumption expenditure on dairy products of urban households amounted to RMB 124.7 yuan, an increase of 3.0 times than that of ten years ago. in 2005, the per capita consumption of liquid dairy products amounted to 18.79 kilograms, 0.51 kilograms of powdered milk and 2.90 kilograms of yogurt. The consumption of milk powder decreased by 7.8% compared to last year, while both liquid milk and yogurt had a small increase compared to last year, with liquid milk products increasing by 1.2% and yogurt consumption increasing by 12.7%. It can be predicted that in the next 5-10 years, China's milk and dairy products will grow at a rate of more than 10%. It is predicted that in 2015, China's per capita milk production will grow from 8.5 kilograms in 2000 to 30 kilograms, a 2.5-fold increase. The development of the dairy industry between 2002 and 2004 is listed in Table 1.

Table 1 Development of the Dairy Products Industry between 2002 and 2004

2002 2003 Year-on-year growth 2004 Year-on-year growth

Sales Revenue (billion yuan) 355,478 34.8% 663 38.6%

Production of Liquid Milk Products (million tons) 364,583 60.0% 806 38.3%

Output of dry milk products (10,000 tons) 106,141 33.3% 142 1.0%

Total profit (billion yuan) 24,30 27.5% 34,12.3%

Profit margin 6.66% 6.29% -5.6% 5.10% -18.9%

In 2005, China's dairy market as a whole, although it was able to maintain a growth rate of about 30%, with the price of raw materials rising at an alarming rate. In 2005, although China's dairy market as a whole was able to maintain a growth rate of around 30%, under the double attack of rising raw material prices and the continuous fire of price wars, the gross profit margins of a number of listed companies in the dairy industry sector showed different degrees of decline, and their profitability levels, both year-on-year and year-on-year, declined to a certain extent. Figure 3 reflects the national average price trend of food categories from 2002 to 2004, half of the national food prices are falling to varying degrees, all categories within the only infant milk powder prices rose significantly, the price of yogurt products over the past two years is the price of a continuous decline in 2003-2004 in all categories of the largest decline.

Dairy industry in the food industry in the proportion of France for 21.9%, Germany for 19.1%, the United States for 12.4%. The development of China's dairy industry started relatively late, for example, in 2003, the total output value of the dairy industry was 52.18 billion yuan (the price of the year), accounting for about 4% of the total output value of the food industry, which is lower than the level of developed countries, but the development potential is very large. According to the development trend in recent years, China's dairy industry as the rising sun, as long as the right policy measures, in the future for a long period of time will show a sustained, rapid development momentum. Related industries, such as packaging, machinery and equipment manufacturing, transportation, retail business and science and technology and other social services will be followed by a prosperous and developed, thus increasing more and more employment opportunities for urban and rural people. This will play an increasingly important role in improving national health, national economic development and social stability.

In 2005, the dairy products industry is expected to realize sales revenue of 80 billion yuan, an increase of 25% year-on-year, but the profit growth lagged behind the revenue growth. First, reflecting the unbalanced growth rate due to supply and demand, intensified market competition, the industry's profitability has declined, the scale of large enterprises, the brand benefits did not play. Second, the consumer market in small and medium-sized cities has not been fully launched. Today the largest liquid milk production plant's daily processing capacity of liquid milk is 1500 tons, technical equipment is the international advanced level.

In 2004, the national urban consumption of dairy products increased slightly, consumption growth is much lower than the growth of production. 2005, Beijing, Tianjin, Shanghai and Chongqing and other major cities, the residents of milk consumption has exceeded more than 30 kilograms, significantly higher than the national average. From the current data, accounting for 21% of the population ratio of provincial capitals above the big cities accounted for 54% of dairy consumption, so accounting for 79% of the population ratio of prefecture-level cities and townships, the rural market demand for dairy products has a greater room for growth. First and second-tier market potential and to the third and fourth-tier cities and townships and rural market expansion will become an important growth point for dairy companies.

2. Characteristics of China's dairy industry

(1) Northern milk south transfer

Since China's milk supply is traditionally confined to the northern provinces of Inner Mongolia and Heilongjiang and other agricultural and animal husbandry provinces, the rapid development of the dairy industry in the process of the southern region of the substantial increase in the amount of milk drinking, the overall view of the north is the south transfer of milk, the north of the dairy products are constantly imported into the southern market. Yili Mengniu is the use of northern resources and price advantage to develop the national market. The peak of milk production in the south in the winter, the summer sales peak raw milk shortage, and the peak of milk production in the north in the summer coincides with the peak season of milk sales.

(2) the gap between urban and rural dairy consumption

Since 2000, urban dairy consumption has been occupying more than 80% of the domestic dairy market, the absolute amount of rural consumption is still very low, per capita consumption of dairy products in 2004 was only 3.62 kilograms, only 14% of the same period of the urban population, but as urbanization continues to promote the rapid development of ultra-high-temperature aseptic packaged milk, and the per capita dairy consumption of farmers is only 3.62 kilograms, only 14% of the same period of urban residents. However, as urbanization continues and the rapid development of ultra-high temperature aseptic packaged milk continues, as well as the slow increase in per capita dairy consumption by farmers, we expect this percentage to continue to climb.

(3) more small and medium-sized enterprises

Dairy industry, although after intense competition, the major dairy Yili, Mengniu, Bright run the results of a significant compression of the profits of dairy companies around the world, but the market is still not fully integrated, the three companies of liquid milk market share of the total has been close to 50%. There are still more than 1,500 dairy companies in China, of which 359 have annual sales of more than 5 million yuan and only 12 have hundreds of millions of yuan. The vast majority of them are small and medium-sized dairy companies, whose production scale is relatively small, with a daily liquid milk handling capacity of less than 50 tons. Many local small and medium-sized enterprises rely on fresh products and control of milk sources to fight tenaciously against foreign dairy giants, a situation that is also partly related to the protection of local enterprises by local governments.

3. Industry development bottlenecks

From 1998 to 2004, the cow stock grew at an annual rate of 16.4%, the total milk production increased at an annual rate of more than 20% growth rate in the national economy industry is considered to be the head of the development of a relatively fast rate of an industry. But it should be said that although the development rate in recent years, due to the industry itself to accumulate some problems and contradictions, especially in the new period, and the emergence of a number of new situations, the problem is also very prominent, especially in the current market order of the dairy industry is more chaotic situation.

(1) consumption growth has slowed down, the level of profits decreased

Despite the fact that production has always maintained a high rate of growth, but the bottleneck of the dairy industry has become increasingly evident. The reason for this is mainly because the consumer demand in primary cities is becoming increasingly saturated, due to channel construction, consumption concepts and other reasons, the townships and rural markets have not yet really started, thus creating a situation of disproportionate supply and demand. In addition, with the rising cost of raw materials and transportation in recent years, product prices continue to decline, the profit margins of enterprises have dipped to 2% to 5% range, some companies in the industry losses.

Leading dairy companies in the consumer terminal will still be the implementation of the price war, profit margins will be compressed to promote the polarization of business operations, which led to an increase in mergers and acquisitions phenomenon, the concentration of production increased. Product diversification, such as lucrative yogurt, fruit milk, functional dairy products will become a hot spot in the future market. The second and third tier cities will become the focus of dairy companies' expansion; meanwhile, townships and rural markets with 70% of the population will become an important stepping stone for companies to realize the leap.

(2) The import volume of dry dairy products is large

In 2000~2004, the import volume of dry dairy products grew at a rate of 14.3% per year, and in 2004, the import volume of dry dairy products reached 343,000 tons, of which the milk powder grew at a rate of 18.8% per year from 2000 to 2004, and last year, the absolute number of imports of milk powder had reached 145,000 tons. Last year, the absolute import of milk powder has reached 145,000 tons. Cream annual growth rate of 41.5%, 38.5% annual growth rate of cheese, condensed milk annual growth rate of 14.7%, dry dairy imports have accounted for a quarter of the total domestic production, milk powder imports have accounted for one-fifth of the total domestic production.

In developed countries, milk output value accounted for more than 20% of total agricultural output value. China's milk output value only accounted for about 10% of the value of animal husbandry, about 3% of the value of agricultural production. Dairy is a more conservative and closed industry. The whole world relies on tariffs to protect its own national dairy industry, the United States and Canada for 150%, the European Union reached 200%, after joining the WTO China's dairy products only 10% to 15%, and now China is negotiating a bilateral free trade zone with Australia and New Zealand, which are the two countries with a relatively large volume of exports of powdered milk and dry dairy products, and if the implementation of the bilateral free trade zone, the tariffs will be further reduced on the basis of the existing tariffs. If the bilateral free trade zone is implemented, the tariffs may be further reduced on the basis of the existing, now some of the agricultural and pastoral areas of the phenomenon of selling cows, selling milk, or even killing cows, there are a variety of factors, but the rapid increase in the amount of dairy imports can not be said that the country's national dairy industry did not have a huge impact on our country. Therefore, this year, the State Office of the 24th document "ban on fresh" to protect the interests of dairy farming, to protect the farmers and herdsmen to raise dairy cattle enthusiasm.

(3) insufficient milk source

Many areas in China, especially some of the lower dairy cattle rearing areas, the phenomenon of blind development of dairy cattle is more serious. Due to resources, technology and market processing and other aspects of the conditions do not have, do not support, farmers raised cows, produced milk can not be sold, the enterprise acquisition of liquid milk and the product can not be sold, milk corruption, spoilage and other problems occur from time to time. Only large and medium-sized enterprises by mechanical centralized milking and feeding district production can control the quality of raw milk. In terms of dairy production, there is a serious shortage of good-breed cows in China; in 2004, China had a total of 9.93 million cows in stock, of which about 4.5 million were really good-breed Holstein cows, and the rest were improved cows. The annual milk production per head of Holstein cows is about 50,000 tons, while the annual milk production per head of improved cows is only half of that of Holstein cows, which is about 20,000 to 30,000 tons.

Table 2 January to August 2005 import and export of breeding cattle production and marketing country (region) volume and value table

Commodity name Import cumulative volume Export cumulative volume

Producing and selling country Quantity (head) Amount (US dollars) Quantity (head) Amount (US dollars)

North Korea - - - 40 3,850

Australia 30,355 47,305, 369 - -

New Zealand 14,069 19,505,845 - -

Total 44,424 66,811,214 40 3,850

The data in Table 2 shows that the number of cows imported in the first eight months of 2005 was more than 40,000, while only 3,000 were imported. Insufficient cow resources and low yields have long been major constraints on China's dairy industry. In this regard, industry experts have pointed out that the development of China's dairy industry has come to a crossroads. China's dairy industry to achieve rapid development, should speed up the speed of genetic improvement of the herd of good breeding cows at the same time, must break the routine, as soon as possible, the application of domestic and foreign in recent years, the cow embryo bio-engineering technology and the good breed of bull sperm separation of gender control technology research results, in order to achieve the purpose of the herd from the quantity and quality of the simultaneous improvement of dairy cows.

(3) The industrialization of the dairy industry is not high.

China's dairy processing enterprises are relatively small in scale and low in processing capacity. More than half of the dairy processing enterprises have a daily liquid milk processing capacity of less than 20 tons. Dairy enterprises abroad is a high degree of integration of production, processing, sales, from cow breeding to dairy processing, marketing and so on all is to take the integration of most enterprises are shareholding system. China's current milk base and dairy processing enterprises have not really established a **** risk-sharing, profit sharing industrialization of the chain. The degree of organization and industrialization of enterprises is a very fatal problem in the development of China's dairy enterprises.

(4) China's dairy quality standard system is not sound, the national third-party quality monitoring is basically not carried out.

Now the development of raw milk standards are very low, the current Chinese standards for first-class milk, in most countries are judged not to be used as raw materials for liquid milk. For this reason, in 2005, China has issued a "ban on freshness" and an order requiring the labeling of recovered milk, laying a solid foundation for the quality of China's dairy products and the healthy development of competition.

The dairy market

1. Segmentation of the industry

Dairy products are mainly divided into liquid milk, yogurt, milk powder, ice cream, cheese, butter, etc. The rapid growth of the dairy industry that began in 1996 was mainly driven by the rapid growth of the urban market, and now in the environment of slow growth of the urban consumer market, before the effective start of the rural consumer market, China's dairy industry, will be in the throes of the pain. Dairy industry, will be in the throes of a difficult transition, market risks and business risks will increase, the first echelon of dairy companies with comparative competitive advantage in the region and products to consolidate the achievements of the second echelon of the brand to expand the battle to become a national brand is difficult, small and medium-sized enterprises to continue to deepen the differentiation of business.

Table 3 Per capita consumption and consumption amount of various milk and dairy products of urban residents in 2003~2004

Per capita consumption of milk and dairy products Liquid milk Milk powder Yogurt Other dairy products

Consumption (kg) Consumption amount (Yuan) (yuan) Consumption (kg) Consumption amount (yuan)

2003 25.0 124.7 18.57 79.4 0.55 18.4 2.57 14.9 2.80 12.1

2004 25.3 132.4 18.79 83.0 0.51 19.0 2.9 17.4 3.1 13.0

Year-on-year growth 1.2% 6.1% 1.2% 4.6% -7.8% 3.2% 12.7% 16.9% 10.7% 7.8%

From Table 3, it can be seen that the consumption of dairy products in towns and cities has been stabilized, and the consumption of liquid milk products dominates as much as 75% of the total consumption, but the sour milk products are still growing, which may be the trend in the future, while the consumption of milk powder is declining.

Table 4 Consumption of all kinds of milk and dairy products by urban residents nationwide in 2003~2004

Price amount (yuan/kg) Milk and dairy products Liquid milk Milk powder Yogurt Other dairy products

2003 4.99 4.27 33.21 5.79 4.31

2004 5.23 4.42 37.18 6.00 4.20

Year-on-year growth (%) 4.9% 3.3% 11.9% 3.7% -2.6%

Figure 3 reflects the price trend of food categories across the country, and the data in Table 4 illustrates that the unit price per kilogram of dairy products consumed in towns and cities is rising, indicating that the level of dairy consumption is increasing, while the price of milk powder has increased by 11.9%, suggesting that the proportion of premium products is It will be difficult to find a market for ordinary milk powder, and the future milk powder market will be dominated by baby powder and high value-added products. According to the National Bureau of Statistics, the sales profit margin of the dairy industry was 6.3% in 2001, 6.8% in 2002, 6.1% in 2003 and 5.4% in 2004, and the profit margin of the top ten enterprises in terms of sales revenue was only 4.9% in 2004. It is lower than the industry average (Figure 4).

Figure 4. Profitability of sales from 2001 to 2004

2. Category Development

(1) Liquid Milk

In 1995, the ratio of dry dairy production to liquid milk production was 1:1; by 2004 it was close to the ratio of 1:5.6. Analyzed from the point of view of sales, liquid milk accounts for about 63% of dairy product consumption and is the absolute mainstay of the dairy industry. The structure of liquid milk has changed dramatically since 1995, in which ultra-high temperature sterilized milk has gradually become a hot spot of competition. before 1998, liquid milk in China was basically the world of pasteurized milk, due to the short shelf-life of pasteurized milk (2~10 days) and the high requirements of the cold chain, the transportation radius of the milk is not more than 300 kilometers, which objectively restricts the development of the dairy industry in a large scale. The ultra-high temperature sterilized milk has a shelf life of up to half a year at room temperature.

Ten years ago, liquid milk production is mainly in large and medium-sized cities, mainly pasteurized milk. Since the introduction of ultra-high temperature sterilized milk (UHT milk) production technology in the 80's, sterilized milk has developed rapidly since 1997. 1998 Yili began to take advantage of the rich resources of Inner Mongolia and low prices through the Tetra Pillow products began the journey towards the first brand of the dairy industry, while Mengniu used the shelf-life of 45 days Tetra Pillow in large and medium-sized cities of the refrigerated pasteurized milk products have caused a huge blow . Taking 1999 and 2004 as an example, in 1999, the proportion of ultra-high temperature sterilized milk and pasteurized milk in liquid milk was 21.1% and 59.9% respectively, and by 2004 it had become 66.7% and 18.1% (Figure 7). During these six years, the proportion of sterilized milk and pasteurized milk has been converted, and now ultra-high temperature sterilized milk is in a pivotal position in dairy production. The rapid development of ultra-high-temperature sterilized milk has accelerated the pace of dairy product structural adjustment, contributed to the promotion of China's dairy industry, and expanded the liquid milk consumption area, so that more cities, towns and villages without cold-chain conditions can drink low-cost liquid milk.

Figure 7 Changes in the liquid milk category

(2) Yogurt

Analyzed from the point of view of sales yogurt accounted for about 13% of the consumption of dairy products, is a newcomer to the growth of the dairy industry, yogurt products in 2004 with a growth rate of 38% of the growth rate of all fast-moving consumer goods in the first growth rate of the first laurels, yogurt in the first half of 2003 to the first half of 2005 The average growth rate of yogurt from the first half of 2003 to the first half of 2005 was more than 40%, flavored milk was 14%, and white milk was 24%. Overall, the development speed of yogurt is higher than that of liquid milk, which reflects the diversified demand for the product, and enterprises should take consumer demand as the driving force to establish a clear strategy for the market and product line. And due to the fierce competition in the field of UHT yogurt drinks profit decline, resulting in the original geographically strong preserved yogurt gradually cost competition hotspot.

(3) milk powder

From the point of view of sales analysis, milk powder accounted for about 14% of the consumption of dairy products, in the past ten years, to the sugar-sweetened milk powder-based milk powder product structure has been completely changed. 2004, the national production of milk powder of about 1,420,000 tons, and the proportion of the proportion (Figure 8) of about 20.7% of the whole milk powder; sugar-sweetened milk powder 13.6%; skimmed milk powder 3.0%; infant milk powder 37.7%; other milk powder 25.2% (milk powder for middle-aged and old-aged people, maternity milk powder, sugar-reducing milk powder, various kinds of fortified milk powder, etc.). As can be seen, China's milk powder product structure has undergone great changes, the phenomenon of full-fat and sugar-sweetened milk powder has been changed, suitable for the nutritional needs of different groups of people's formula milk powder has been more than 60% of the total output.

Others include: milk powder for the middle-aged and elderly, maternity milk powder, sugar-reducing milk powder, and various kinds of fortified milk powder, etc.

Figure 8: Distribution of milk powder production in 2004

(4) Ice cream

In 2005, the battle for the middle and low-end markets was particularly fierce. Yili and Mengniu ranked first and second in last year's cold drink market with market shares of 15% and 13% respectively. Behind the changing market leadership is the growing and reshuffling of the entire cold drink industry. 2005 China's annual sales of ice cream has reached 26 billion yuan, and in ten years, the domestic cold drinks from the scattered operation of more than 3,000 small brands of disputes into more than ten cold drink giants between the strength of the fight. In the past, the low-end market is mainly competition between domestic brands, and this year, such as and Lu Xue, Nestle and other foreign brands in the past to take the high-end route to change the product strategy, a large-scale entry into the "dollar market". Price strategy from the retail price of 2-3 yuan to 1-1.5 yuan change. From the current market pattern, and the snow and Nestle, Yili and Mengniu has formed the first camp of branded products, other branded enterprises and small and medium-sized ice cream enterprises in the experience of labeling test will further open the gap with the first camp, but the four giants who will be seated in the first chair of the Chinese ice cream market is still waiting for a period of time to the market test.

3. Industry leading enterprises

In 1995, the country's top ten enterprises dairy production 56,000 tons, accounting for 10.6% of the country's total output; output value of only 1,040 million yuan, accounting for the country's total output value of dairy products industry 13.3%. In 2004, the top ten enterprises in the dairy industry produced 4.695 million tons of dairy products, accounting for 49.5% of the national total output; the total output value of dairy products industry was 37.68 billion yuan, accounting for 56.8% of the national total output value; in 2004, the top ten brands in the dairy industry ranked in the sales of liquid milk in the following order: Yili, Mengniu, Bright, Sanlu, Yangzijiang, Sanyuan, Wundasan, Juneyao, Wahaha, Wangzai, with the total market share of 74.62%, Yili, Mengniu, Bright, Sanlu, Yangzi River, Sanyuan, Wundasan, Juneyao, Wahaha and Wangzai. 74.62%, Yili, Mengniu, Bright three giants have accounted for nearly 60% of the market share.

Currently China's dairy industry has formed three camps, and will be shuffled through fierce competition. Yili, Mengniu, Bright three giants form the first camp, accounting for nearly 60% of the market share, Yili is 22.05% accounted for more than one-fifth of the total disk sales topped the list. Sanlu, Yangzijiang, Sanyuan, Wanda Mountain and other enterprises to form the second camp, is rapidly developing to the country, but in the short term it is difficult to form a strong challenge to the first camp. The rest of the more than 1,000 small and medium-sized enterprises to form the third camp, is facing a strong impact of the first two camps.

l Yili

Yili established Yili Frozen Foods in 1993, and its ice cream products have been the top seller in China for nine consecutive years. 1999 saw the start of the development of ultra-high-temperature liquid milk products, which were the top seller in China in 2003, and ranked fourth in the market share of milk powder. 2004 saw Yili's sales reach 8.735 billion yuan, and it acquired 22.05% of the liquid milk market through the promotion of the Tetra Brick. 22.05% of the liquid milk market share, accounting for more than one-fifth of the total sales topped the list. Yili's strategy of product management, capital management and brand management has achieved great success. Has more than 20 factories in the country, through the depth of distribution of solid sales model, in the country to establish a firm and unshakeable leading model, even if the end of 04 executive events have not been able to affect the performance of its rapid growth.

l Mengniu

Mengniu Group was founded in 1999, as a latecomer to the dairy industry, "Mengniu" with excellent marketing tools and Yili in the country's entire product all-channel launched a comprehensive competition to achieve rapid growth to Tetra Pillow and ice cream products. The sales of Tetra Pillow products ranked first in the country. In six years, Mengniu's sales revenue soared from 0.37 billion yuan in 1999 to 7.214 billion yuan in 2004, with a growth rate of more than 100% for four consecutive years! Ice cream products and liquid milk sales are the country's No. 2, ranked second in overall strength.

l Bright

Previously known as Shanghai Milk Company, to produce fresh products mainly pasteurized milk and yogurt sales are ranked first, sales reached 6.786 billion yuan in 2004, the overall strength of the third. There are more than twenty factories around the country, product sales mainly in East China, built a strong production, storage and transportation and sales network, milk delivery to more than 1 million households.

The current trend of competition in the dairy products market is: from product competition to the expansion of the competition for resources, from product management to capital operations, macro-union, micro-competition. Therefore, in the coming period of time, China's dairy products industry competition pattern is subject to further differentiation and development.

Three, the development trend

China's dairy industry after fifteen years of rapid growth, has gone from regional competition to national competition, from the competition of liquid milk to the competition of ultra-high-temperature sterilized milk, from the competition of liquid milk to the competition of yoghurt, all kinds of competition intertwined with the vigorous development of China's dairy industry has made a great contribution to the development of the dairy industry in 2005 is the dairy industry, the competition is even more intense. The year 2005 was a year of more intense competition in the dairy industry, with dairy enterprises competing for the market through price competition, and increasing their efforts in the construction of milk sources and consumer terminal services. 2005 was a good year for China's dairy production, with output continuing to maintain the trend of rapid growth, and exports showing a resumption of growth, but the sales profitability of the dairy industry has been declining year by year. More seriously, the profitability level of large enterprises with small enterprises and no significant gap between the August 2005 China's dairy industry provoked a new round of price war, China's dairy industry will continue to decline due to continuous fierce competition profits, small and medium-sized enterprises will inevitably speed up the speed of exit, the national dairy industry through the integration of mergers and acquisitions has formed a number of dairy enterprise groups of considerable size and technical level, the industry's The concentration of the industry is increasing year by year. Dairy processing industry, few large enterprises, small and medium-sized enterprises is a major feature of the current development of China's dairy industry, there are currently about 1,500 large and small domestic dairy plants.

1. Consumption of dairy products continues to grow at a high rate

Since 1997, the consumption of dairy products by Chinese residents has been growing rapidly, with the rate of growth increasing year by year, and after reaching a historical high of more than 30% in 2003, the rate of growth in 2004 declined markedly, but was still at a high level of about 23%. 2005 is expected to grow at a rate of 25%. In terms of the composition of consumption, although the average growth rate of net imports since 1995 has been 21.27%, exceeding the average 16% growth rate of domestic raw milk production, it has fluctuated considerably and its share of total consumption has not changed much, having risen by 3 percentage points since 1995 to reach 10.11% in 2004. Domestic raw milk production has been at the center of the total apparent consumption of dairy products, and the growth rate of the two over the years has been almost the same.

China's per capita consumption of liquid milk, milk beverages and fermented milk is far below the world average, and the per capita level of cream and cheese is even lower. The imbalance in regional distribution and the huge difference in consumption levels between urban and rural areas are factors that make China's dairy consumption market contain vast room for growth. As the income of urban residents continue to grow, urban and rural income reduction will promote the potential demand into real consumption, while changes in consumption habits, changes in corporate sales strategy will effectively stimulate the growth of dairy consumption in second and third-tier cities and rural markets. The next round of growth comes from three aspects:Substitution of other beverages. According to AC Nielsen retail research, Chinese consumers currently spend the most on carbonated beverages, milk and yogurt consumption is growing rapidly, from a nutritional and health point of view, its substitution of carbonated beverages has more space. We use the growth of residents' demand for dairy products to predict the growth of the dairy industry, the average growth of China's dairy market from 2005 to 2020 is 12.23%, and if segmentation is considered, the growth of 2005-2010 is 16.19%, and 2010-2020 is 9.92%. In the internal structure of dairy expenditure, urban residents' expenditure still occupies absolute dominance, and even if the proportion declines year by year, by 2020, the proportion will still be more than 73%.

2. Pasteurized milk and yogurt products will continue to develop at a high speed, and launch a full-scale competition

Over the past 10 years, the resource-based dairy industry is mainly ultra-high-temperature sterilized milk as the main competitive weapon in the country to divide the territory, but the nation's dairy industry price wars have made the gross margins of ultra-high-temperature products are getting lower and lower, and even in some cases have reached a situation in which the milk is cheaper than water, and ultra-high-temperature pure milk products The ultra-high-temperature pure milk products have become unprofitable, and the ultra-high-temperature yogurt drinks have also become popular nationwide. In order to further expand Yili and Mengniu have set up factories for preserved liquid milk in Beijing, and Mengniu has gained a high share of preserved yogurt in the Beijing market. In view of the high growth rate of over 25% in preserved yogurt in consecutive years, high gross profit margins and Bright's monopoly in the East China market, both Yili and Mengniu will start to build factories in East China in 2006, in an attempt to shake Bright Dairy's position as the refrigeration hegemony in the East China region. Yili is expected to build liquid milk, ice cream and yogurt projects in Hefei and Suzhou in eastern China, with a total investment of more than 320 million yuan. Mengniu Dairy will invest 250 million yuan to build a modern 10,000-head dairy farm, forming and Mengniu liquid milk production line to match the scale of dairy farming. The two giants in South China to occupy the market in East China after years of exploration and marketing, and finally in the bright profit zone - East China began to smash the heavy fist, a dairy giant in East China will kick off the showdown.

3. Multinational dairy giants want to make a comeback

Given China's huge population and huge market, foreign investment in China's dairy industry from the 90's onwards, Nestle, Kraft, Uno, Danone, Parmalat, Wyeth are in China to build factories and set up a sales network, but only in the powdered milk industry Nestle took the crown of the industry leader, Dometic in the infant milk formula, a one-hit wonder, in liquid milk powder, and a good deal more. In the liquid milk market foreign investment in China due to high personnel and production costs, poor adaptability to the marketing model of China's low-end market, unable to open up sales, basically ended in failure, and finally chose to withdraw or cooperate with the local dairy industry. Although the first ten years of foreign investment in the first round of the dairy industry war did not go well, but adopted a more localized strategy, from direct participation in the competition to joint ventures with domestic brands, trying to seize the opportunity to make a comeback after the competitive landscape of China's dairy industry basically take shape. At present, the main targets of foreign investment in the dairy industry are:

Time Source of foreign capital What happened

2003 France's Danone holds a 5 percent stake in Bright and a 50 percent stake in Wahaha

Three foreign institutions, including Morgan Stanley, injected 290 million yuan into Mengniu

International capital In 2004, Mengniu was listed in Hong Kong, raising 1.374 billion Hong Kong dollars, or about 1.4 billion yuan, in Hong Kong Dollars. HK$1.374 billion, about RMB 1.456 billion

New Zealand's Fonterra Group holds a 39% stake in Hebei Sanlu Group

2005 Taiwan's Unity enters Northeast China's Wundashan with an investment of RMB 1 billion and a subscription of 50%

Alafuz holds a 49% stake in Mengniu's milk powder business, with a total investment in the joint-venture company of 540 million RMB, with a registered capital of 180 million yuan

Mengniu has been listed in the Hong Kong Stock Exchange for more than 20 years. Registered capital of 180 million yuan

Danone increased its stake in Bright Dairy to 9.7% of the shares

In the national dairy industry giants, only Yili's introduction of foreign capital is not large, only in 2005 with one of the world's largest food companies in Finland, Valio (Valio) signed a contract to buy out the exclusive right to use its globally renowned probiotic bacteria LGG in China for five years.

Four, hot topics - dairy industry integrity crisis

In June 2004, Fuyang's small business milk drink "big head baby"; the end of May, Nestlé baby milk powder was found one after another by the state quality inspection unit iodine exceeded the standard; June 5, 2005, Henan TV station On June 5, 2005, Henan TV broadcast the news that Bright Dairy's Zhengzhou subsidiary had returned expired milk to the furnace and used it for sales; on June 7, Bright denied to the media that it had processed expired milk. Although the final results of the investigation showed that "it has not been found that Zhengzhou Guangming Shanmeng Dairy Co., Ltd. recovered milk from the market and reused it for production", there was a phenomenon of "using stock products in the shelf-life of