Fancy a splash of milk with that? In China’s case the country does not have nearly enough to offer. Small dairy farms with low production yields are failing to meet demand. Distrust of scandal-hit local brands has driven parents as far as the UK and Australia in search of foreign-made baby milk. And to top it off, one of those foreign producers has been caught up in its own scare.
Still, the share prices of China Mengniu, the domestic industry’s biggest dairy processor, and China Modern Dairy, the top supplier, just jumped after Mengniu’s tie-up with Danone, among others, boosted first-half sales. If China’s milk industry can shed the scandals, it is worth investors taking a look.
Over the past seven years, China’s milk consumption has doubled but raw production has been growing at less than 2 per cent a year. The country’s dairy farms are mostly small operators, and the top five producers hold a mere 5 per cent of the total market, according to Macquarie research. For example, Modern Dairy, at number one, has only a 1.3 per cent share. And its average milk yield per cow, at 5 tonnes a year, is a sixth below more developed producers such as Australia and half that of the US.