China's milk hunger - China's milk production February 11, 2008

ARTICLE
China's milk hunger - China's milk production
Lior Yaron
Published: February 11, 2008
The Chinese dairy industry is expanding very rapidly to meet the demands of the rapidly changing dietary requirements of its huge population.
Local production will continue to increase but not at the same pace as demand, so import of milk products will continue.
The main limiting factors in Chinese milk production are: industry chain remains long and complicated, lack of experience and technology, land and climate limitations (central and south of China).
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Introduction
There are about 1.3 billion people in China, 745 million in the countryside and 555 million in the cities. The standard of life is increasing year by year, trying to reach that of the western world. The Chinese government considers milk to be an important part of the young person’s diet, and this, combined with the increasing western influence, is bringing a 10% yearly increase in dairy production – albeit from a relatively low base. Dairy production in China is changing rapidly and it will continue to do so in the near future. Milk production continues to grow rapidly in response to domestic demand, mainly in the urban sector.
Milk consumption
Twenty years ago China was not among the countries that were mentioned when we talked about milk consumption or production. The reasons for that were no tradition of milk products in the diet, that it it was an expensive product and the local people had low incomes, and lack of cooling facilities in the marketing chain. However in the last few years it has all changed dramatically. The urban population is growing rapidly, urban people have higher incomes which will be spent on high value food like milk. Government support for school milk and changing consumption habits. The average milk consumption in Beijing is about 46.2 kg per capita; even if only in the big cities people will reach this average, an additional 16 million tones of milk will be needed, equivalent to the total current New Zealand milk production (source: IFCN).
Milk production
There are today about 14 million dairy cows in China producing about 34 MMT of milk. The growth rate in cows and production is about 10% to 15% per year which comes mainly from increasing the number of cows. China is still importing a lot of dairy products mainly from the US, EU, Australia and New Zealand. The main regions for milk production are the North East, Central North and North West of China while in the meantime the main consumption areas are in the east and the south of China.
There are three different units of production:
1. Small private units – one to ten cow farm units are very common (60% of the cows) but at the same time there are also 50 - 100 cow units in this sector. The logistics problems with such small units are being resolved by a unique solution in China: a) Village Milk Centre (VMC) – in the middle of the village there is a milking centre and each farmer brings his cows to be milked there by a professional milkman.b) Hotel farm – all the farmers in one village bring their cows to one big dairy farm. They are shareholders in this operation but not working in it.
2. State owned farm – typically with 800 to 2000 cows. They normally require advanced equipment. They represent about 8% of the dairy cows.
3. Large dairy farms – owned by large dairies –typically with 1,000 to 10,000 cows. They normally require advanced equipment and they represent about 3% of the dairy cows.
The main challenges that the dairy industry will have in the near future are:
1. Milk quality – since the demand is much higher than supply the quality issue hasn’t yet come down to the farm level. Most of the dairy farmers are backyard farmers with other farming business and dairy is only one of them. Most of those farmers are new to the business with low levels of understanding of the dairy business; especially what milk quality is all about, cow comfort and nutrition of dairy cows.
2. Feeding cows – most of the know how about it came from mono gastric animals like pigs and chickens, there is lack of understanding of the importance of forage and forage quality in ruminants nutrition, and the farm structure is such that it is very difficult to get enough forage close to big cities. The increases in feed prices are creating big debates regarding crop production compared to milk production.
3. Support units for the farm and farmers: right now it’s very difficult to find any support units which can solve problems at the farm level: no extension service, herd book system, farmer association, dairy cattle breeder association, milk quality and mastitis control laboratory, or feed and forage laboratory.
Summary
The Chinese dairy industry is expanding very rapidly to meet the demands of the rapidly changing dietary requirements of its huge population.
Local production will continue to increase but not at the same pace as demand, so import of milk products will continue.
The main limiting factors in Chinese milk production are: industry chain remains long and complicated, lack of experience and technology, land and climate limitations (central and south of China).
This article was presented at the International Dairy Farmers' Congress 2008 in Berlin

China giving greater support to agriculture to cool inflation

China giving greater support to agriculture to cool inflation 2008-03-26 21:33:08 BEIJING, March 26 (Xinhua) -- China promised on Wednesday to increase financial support for agricultural production as part of a larger effort to cool an inflation surge blamed on food shortages. "Reinforcing agriculture has a pivotal role in maintaining sound and fast economic development, curbing inflation and safeguarding stability," the State Council, or the Cabinet, said in a statement. The Cabinet agreed in an executive meeting chaired by Premier Wen Jiabao that China would "immediately" increase the subsidies for farmers' purchase of production materials and seeds, and raise the government's purchasing prices of grain. The move was meant to "mobilize the initiative of farmers to plant crops and ensure an adequate supply of agricultural and sideline products," it said. The announcement added to a string of efforts to end shortages of pork, China's staple meat, and other basic commodities that pushed the inflation rate to a near 12-year high of 8.7 percent in February. Pork production fell dramatically last summer on breeders' dampened enthusiasm due to rising feed costs in addition to a massive pig cull after the outbreak of blue-ear disease in some regions. The unusually harsh winter weather also dealt a serious blow to vegetable and rapeseed crops in many areas and killed many pigs and chickens. The central government's budget earmarked for agriculture, farmers and rural areas reached 562.5 billion yuan (79.2 billion U.S. dollars) this year, 130.7 billion yuan more than in 2007, according to the government work report delivered by Wen earlier this month. The sum included a subsidy of 48.2 billion yuan for production materials purchase, 4 billion yuan for farm tools and 7.07 billion yuan for seed. Editor: Du Guodong

...more financial support for agricultural products.... at present there are already a subsidy abt $2 per straw for bull semen :).... although not mention I think there might be more subsidy :)
...The raw milk condition is worsen by the pig problem (B E disease)... with culling of some cows. (most prob low yielding or older cows)

CLSA: Sell The Milk And Milk Processors

CLSA: Sell The Milk And Milk Processors Positions must be cut entirely on pure Milk re-sellers like Anik, Modern, Heritage and Kwality Dairies, while exposure reduced to Britannia and Nestle.
China's Milk Dairies are sinking deep into the Red as Raw Milk prices rise, and the PRC Government imposes price controls on Milk and Milk products sold in Greater China region.
-Local Dairy Associations in Inner Mongolia, Heilongjiang and Shandong provinces have reported tight supplies of Raw Milk, with no signs of supply shortfalls easing in the near future.
-As price of Grain and Feed Stuff rises Breeding of Cows has been stopped in most Milk producing regions of China, with many farmers resorting to Culling the cows.
-As a pure statistic the number of Cows in the Shandong province have declined by 50 per cent in the period 2003-07.
-Very surprisingly new Milk processing plants have been set up in Shandong, Yili, Mengniu adding to the fierce competition that prevails in procuring Raw Milk.
-Raw Milk prices have consequently risen 67 per cent in the past 2 years, most of the price increases have not been passed on to consumers leading to a massive reduction in operating margins for Dairy producers.
-As a thumb rule, if Raw Milk prices rise by 5 per cent operating margins sink by 31 per cent.
A similar scenario could prevail in India as well, which is seeing the price of grain and raw feed prices going up in rural areas with direct and indirect price controls being imposed on Milk prices.
Positions must be cut entirely on pure Milk re-sellers like Anik, Modern, Heritage and Kwality Dairies, while exposure reduced to Britannia and Nestle.

With 150 tonnes of raw milk processing setting up in March by China Milk, look for further upside.
What about the bull sperm business ? It should be relatively unaffected as with the demand for raw milk, and limited land in China, there should be steady demand for high yielding bull sperms.

Agricultural Commodity Stock - China Milk

Something I find interesting and the price very appetising.
It has with other China stocks badly beaten up, dropping ( 60%) from a high of 1.63 to now 67 cents.
1 - cheap

2 - recession proof

3 - good ride on agriculture commodity play. Agricultural commodity run is in its infant stage. The metal commodities with all the infrastructure boom has started from 1999 to now. For Agricultural Commodity, I believe it started around 2003, which means it has 4-5 more years to run to catch up with the metal commodities. And at presently, AC is at 1st of 3 stages.

4 - a recent report which mentions that funds have the intention to put 10% of their money to agricultural commoditiy stocks.

5 - A remark by China's prime minister Wen Jiabao: "I have a dream - a dream to be able to provide all Chinese, especially our children, with half a litre of milk a day." The result has been a huge increase in milk consumption in China and demand is growing at a rate of around 25% a year. China’s milk consumption continues to be spurred by consumers demanding healthier and more nutritious foods. With rising affluence in the world’s fast-growing consumer market, there is a rapidly growing penchant for international food and beverage concepts which use a lot of milk and milk products. The PRC government has also been promoting the need for nutrition as evidenced by the government’s nation-wide School Milk Programme.

Why China Milk,
- With limited pasture land, China cannot continue to increase the number of cows to enhance its milk supply. China has much to catch up in terms of improving the milk yield of its cows.
- Based in the Heilongjiang Province, our subsidiary is the largest company specialising in the production of bull semen, dairy cow embryos and raw milk in China *
* According to China Dairy Industry Association

- It is building a 150 000 tonnes raw milk processing factory. They have signed a contract to provide OEM with raw milk, As of Jan qtr report, it has installed the milk machines by early march and will commence trial production for 1 month.

- The outbreak of mad cow disease in Canada and the U.S. in 2003 knocked the North American cattle industry on its back. The largest importers of U.S. and Canadian beef, including Japan, South Korea, and China, banned the import of beef from North America. But for China Milk Products, the restrictions proved to be a blessing in disguise. The privately owned raw milk company had already purchased 970 Canadian Holstein cattle. Its state-owned rivals failed to import as many cattle because they had to navigate government bureaucracy to get bank loans. Today, China Milk owns the largest herd of Holstein cattle in China and ranks 50th in BusinessWeek's annual Hot Growth rankings of Asia companies
Any rancher wanting to breed his cows with a Canadian Holstein has to go to China Milk. The company charges its customers $9.50 per sample of bull semen from a Canadian Holstein, compared with $6.75 from Australian Holsteins and $2.70 from Chinese Holsteins. However, Chinese ranchers are still willing to pay a premium for Canadian Holsteins, especially after receiving a little help from the government.
Starting this year, the Chinese government is giving Chinese ranchers a subsidy of $2 toward each sample of bull semen.

- China consumption of dairy products is about 20kg in 2006. It is a low base compared to other countries. With a greater awareness of nourishment with drinking of milk, and better life style (ice cream/butter/ yoghurt), demand will continue to increase

- Tourism will continue to be strong after the China Olympics. With more Ang mos visiting China, they will want their daily milk, butter, pasta, yoghurt, boosting demand.