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By: Ildiko Szalai

China is expected to account for nearly one quarter of the global dairy industry’s retail value growth over 2013-2018, expanding by US$17.7 billion in actual value sales terms. However, at the same time, the market environment is not without major challenges, which include an underdeveloped infrastructure, unstable supply chains, a fragmented retail network and rapid market consolidation. In order to improve market conditions and ensure long-term sustainable growth, a number of initiatives are being launched by both international and local companies. Inner Mongolia Yili Industrial Group, the largest dairy player in China, has set up a European research and development centre in Wageningen, the Netherlands, while Fonterra has announced the establishment of the China-New Zealand Dairy Exchange Centre. Both initiatives aim to further develop China’s dairy industry in order to fully benefit from the growth potential provided by ongoing socio-demographic and economic trends in the country. These investments in market development are likely to benefit both local and international players but more of these needed to make full impact on growth.

Top Five Global Dairy Markets’ Growth Prospects – 2013-2018

Source: Euromonitor International

Yili Looking to International Markets to Ensure Stronger Growth in China

In February 2014, Inner Mongolia Yili opened a research and development centre in the Netherlands in partnership with Wageningen University. The new centre will focus on dairy farm management, dairy product research and food security.

The company’s investment in this research facility reveals its priority to maximise growth potential in its domestic market rather than enter new international markets.

Yili will not find better growth opportunities in any other region, but infrastructure and supply chain improvements in China must be made. Most importantly, however, R&D investment needs to be focused on determining future dairy demand and helping to shape companies’ product offerings accordingly.

Cooperation Between International Players and Industry Authorities

In the same week that Yili opened its research centre in The Netherlands, New Zealand dairy group Fonterra announced that it will work with the Chinese authorities to develop a centre of dairy expertise in Beijing.

The China-New Zealand Dairy Exchange Centre will provide a forum for the sharing of knowledge, research and expertise between the Chinese and New Zealand dairy industries. The centre will develop procedure in policy development in the Chinese and New Zealand dairy markets, academic exchanges, industry promotion, dairy technology research and personnel training.

Although the Chinese dairy market is heavily dominated by local players, with all of the top 10 manufacturers being Chinese companies, multinationals are showing a strong interest in gaining a share of the industry’s anticipated strong growth.

The development of the market through research and the sharing of knowledge is in the interests of multinational companies aiming to enter or expand in China as much as local players.

Investment in Market Development Well-Justified

Given the positive growth prospects offered by the Chinese dairy industry, more market development initiatives are being launched, both by local and multinational companies, as well as the Chinese authorities. But, it will likely remain a challenging and highly competitive environment in the short to medium term. Successful growth strategies will have to overcome a wide range of challenges from insecure milk supply, poor food safety records and underdeveloped distribution outside urban markets. There remains plenty of room for further initiatives to enable the industry to achieve its full growth potential.

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