Milk Famine Haunts China

At the end of 2013， Sanyuan

took the lead among all Chinese dairy enterprises to improve the price of its products by 7%. It was followed by Mengniu， Bright Dairy and Yili. Shanghai-based Bright Dairy improved the prices of all categories of its products. Meanwhile， the low- and middle-end milk was in short supply in the supermarkets of China.

“There is a restrained supply of raw milk，” said Mr. Guo， a cattle farmer in a county next to Shijiazhuang， capital of Hebei Province.

In October 2009， Mr. Guo was still busy adding new fences for its milk cows. At that time， the feeding farm of which he was a part planned to increase the number of his milk cows from 1000 to 1500. However， four years has passed and his plan was not realized； instead， the number his cows was reduced.

The Return of Milk Famine

“Now I have 200 milk cows， taking one third of the total number of milk cows in the area. Previously， the feeding area can produce six tons of raw milk once a year but now the output was only four tons，” Mr. Guo said. “Farmers are not willing to feed milk cows.

After a thorough investigation， Mr. Guo found that the price for the milk cows increased and the number of breeding stock was reduced as well. Even if he had money， he could not buy the milk cows he wanted.

Wang Weiming， secretary-general of the Western Dairy Development Cooperative， said that “scrambling for the milk has become a common phenomenon in China”. From September 2013 when the high season of milk products began， the short supply of raw milk emerged. Enterprises of different places are contending with each other to get the milk source. Dairy enterprises in Sichuan and Chongqing went to Shaanxi to get the milk while Shaanxi-based enterprises went to Ningxia for new milk sources.

The same situation could be seen in Heilongjiang， a well-known province for milk in China. The Heilongjiang Association of Milk made an investigation and found that the competition for milk sources was very furious in Heilongjiang even though it might be a short-lived phenomenon.

The milk famine soon spread the effect to dairy enterprises. An insider of Yili confirmed that the “milk fam- ine indeed existed and had affected the company， but it would be ended in the year of 2014”.

Mengnius spokesman Di Mei said that “Mengniu now could get the raw milk for 80%-90% of its production capacity and it planned to adjust the price of products timely and reasonably in consideration of the comprehensive cost”.endprint

Now， it is forecasted that the gap between the supply and demand of raw milk is around 4 million tons.

Two years ago， the Chinese dairy industry seems to be booming？ But why the milk famine emerged so quickly and unexpectedly. Even Wang Dingmian， an expert in the dairy industry， could not figure out the reason. He suspected that the called “milk famine” might contain some “speculations” and was an excuse for the milk enterprises to improve their products prices.

His skepticism was based on three indexes – the total output of raw milk was not reduced； the breeding stock of milk cows did not see big changes and the milk products did not have a dramatic increase in the output.

Here come the contradictions. Wang Dingmians data came from the governmental department， which said that the breading stock of milk cows， for example， was 14.4 million in 2011 and 2012 and the milk output reached 38 million tons with a dramatic increase compared with the year of 2008. “The development of the industry has a solid foundation.”

But many experts and practitioners did not agree with the official data. As revealed by Mr. Guo and his colleagues， the actual breeding stock and milk output were far less than the aforementioned data. But there was no unified data， as the number of milk cows bred in China ranged from 6 million to 10 million.

Liu Yanan， secretary-general of The Association of Milk of Shijiazhuang， Hebei， said： “I am not sure what its the situation outside our province. But from what I know， the breeding stock in Hebei was almost the same with the one in 2008.”

Then， how did the milk famine come out？ Liu Yanan had her own opinions： “The epidemic disease in the spring and the extreme heat in the summer lead to the short supply of milk cows. The reduction of the milk powders imported from New Zealand forced many enterprises to increase their demand for the raw milk.

Some media reported that the high price of beef cattle lured some milk farmers to sell their milk cows as beef cattle. But this was denied by Song Liang， a dairy analyst at Distribution Productivity Promotion Center of China Commerce. “The meat of milk cows and beef cattle is different from each other in the taste and quality. It is likely that some pasture enterprises that got a lot of subsidies from the government blamed the selling and killing of milk cows as beef cattle for the short supply of cows to get rid of their own responsibilities.”endprint

Is the Price of Raw Milk Reasonable？

The “milk famine” necessarily leads to the increase of raw milks price.

According to Wang Weimin， the purchasing price of raw milk increased from four yuan per kilogram in 2012 to five yuan in 2013. In some places， the price was even higher than six yuan per kilogram. “The price of purchasing milk went up 40% compared with a year before.”

The data from the reality is that these telecom carriers seem to have severe congenital defect compared with newly arrived competitors due to their enclosed network operation mode for a long time the reality is that these telecom carriers seem to have severe congenital defect compared with newly arrived competitors due to their enclosed network operation mode for a long time Ministry of Agriculture showed that the production price of milk in the third quarter of 2013 increased by 3.1 percent. Song Liang said that the data from the Ministry of Agriculture is quite conservative as the average purchasing price of raw milk had exceeded four yuan per kilogram very early.

Actually， the purchasing price of raw milk produced in China is even higher than the one of foreign raw milk. Before the increase of raw milk price， the farmers complained that the purchasing price had not increased for a dozen of years. But when the raw milk price in China was higher than the one of imported milk powders from for-eign enterprises， many dairy companies turned to the foreign milk sources.

For example， the data from DG Agri showed that the purchasing price of raw milk in the EU was 2.92 yuan per kilogram in July. In Germany， France， UK， Holland and Poland， the top five countries of milk production in the EU， the average price of raw milk was 3 yuan per kilogram. Then， as Wang Dingmian said， the purchasing price of raw milk in China has been higher than the global average price for four years from 2010 to 2013.

The financial crisis starting in 2008 has gradually reduced the governmental subsidies for milk farmers in Europe. The low purchasing price and the high cost already made many European farmers complain about the “extremely low purchasing price of raw milk”. But the milk farmers in Europe had the advantages of being large in size and highly professional in skills. Therefore， they have more anti-crisis ability the milk farmers in China. In spite of their complaints， they do not reduce the milk output and pay as much attention to the quality as before.endprint

In addition， the purchasing system of raw milk in China was not complete. The price is basically formed through the negotiations between the milk farmers and dairy enterprises. However， the Chinese milk cow feeding industry is not yet in the same interest community with the dairy enterprises. On the other hand， the milk cow feeding industry is small in size and weak in negotiating the price. This gives the enterprises enough authority to depress the price in low season and scramble for the milk in high season.

In comparison， the developed countries have a rather reasonable system for forming the price of raw milk. For example， in Israel， the purchasing price of raw milk is discussed and determined by the government， association， milk farmers and dairy enterprises. The price is to be reviewed once every two years and the dairy associations have the right to change the price slightly once every three months based on the production. The enterprises can also give prices slightly higher or lower than the benchmark price to farmers based on the quality of raw milk they supply.

In these years， there is strong voice in the dairy industry of China to build a system for forming the purchasing price of raw milk to solve the contradictions between the milk producers and processors， which are good for the healthy development of Chinas milk industry. However， such a call never got substantial and meaningful replies.

“After the melamine event， the relevant governmental department once required to set up the third-party review system， which was not put into practice either. The price of raw milk is still determined by the dairy enterprises alone.”

The Interest Chain in the Cow Feeding

The chaos of the formation of raw milk price is finally attributed to the defects in the pattern of feeding milk cows in China.

Chinese milk farmers are confused as well. They always rushed into the milk cow feeding enterprises with excitement and expectations， but quitted with embarrassment and loss after a fiasco. The farmers are usually the only risk takers of the fluctuating milk price and they are usually the ones causing the fluctuation.

When there is a short supply of raw milk and increase in the price， the farmers immediately increase their number of milk cows. They never consider whether their assets， the size of the meadows and their skills can suffice the cows. As the number of milk cows keeps increasing， the supply of raw milk finally surpasses the demand， leading to the drop in the price of raw milk. Then the farmers immediately quit.endprint

When there was trouble， the milk cow farmers and the dairy enterprises never joint forces to fight against the crisis. They separated from each other and could not jump out of this vicious circle， which was to come out every five years.

The dairy enterprises are in the predicament as well. It was them that pushed the milk cow farmers in China onto the way of abnormal development， which led to the losses of both them and the farmers.

Therefore， some big dairy enterprises in China are on one hand competing with each other in the sales market， and， on the other hand， spending more on the feeding pattern and system for the enterprises and milk cow farmers to share the risks and profits. The milk as- sociations， cooperatives of milk farmers and self-built meadows are their experiments or results in that field.

And they are now speeding up their transformation， but the fundamental pattern of modern dairy industry is far from being formed. The current profit mechanism is still very weak and the large-scale milk cow farming still cannot make big contributions.

According to the official data， the feeders with more than 100 milk cows have the number of cows accounting for 35% of the milk cows in China. The proportion is 15.5 percent higher than the year of 2008. But the large-scale milk cow farming cannot resist the risk of milk famine. As many milk farmers who used to feed a few cows quitted this field while the new large-scale feeders cannot fill the gap， the short supply of raw milk came out.

In foreign countries， the community-like pattern not only ensures the reasonable distribution of milk resources， but also guarantees the interests of farmers， processing enterprises and retailers. The milk farmers join in the community based on their will and could be the shareholders of it. The community is responsible for negotiating with milk enterprises about the price and supply or even setting up processing facilities themselves.

Fonterra， Arla Foods and other established milk enterprises all developed through that pattern. They met problems during their development history but found ways to solve them. Sanlu Group， the Chinese milk company destroyed by the melamine event， also prospered through the cooperatives and its doom also started when it gave up that pattern.

Raising Milk Cows Is a Hi-tech Thing

When the milk famine haunts China， many people speak of increasing the output of milk of single cows. However， the infrastructure of Chinas dairy industry is so weak that increasing the output of a single cows milk is almost a“mission impossible” – it is too hard to ask a horse to run as fast as a rocket.endprint

The low productivity of the milk industry in China is caused and epitomized by the low milk output of a single cow and the low conversion ratio.

For example， the world record of milk output of a single cow in a year was 11.7 tons， which was created by Israel. In China， the average output per unit is below 5 tons， almost half of the average level of 9 tons in developed countries. In China， one kilogram of forages can be turned into 0.8 kilograms of standard milk， while in Europe， the conversion ratio war 1：1.5.

Then， is that possible for the Chinese milk farmers to raise the output of milk per unit？ The analysts did not give out a positive answer.

The dairy industry of China began its massive development in 2000， from which it entered a fast development period till the outbreak of “melamine event”. By now the entire industry has realized the necessity of transforming from traditional pattern to the modern pattern.

Gu Jicheng， chief of the General Station of Livestock Breeding， once put forward ten goals for the milk industry in China to be modernized. But the first two goals concerning the improvement of the quality of cows and forage grasses are the first barriers which are hard to overcome.

“First we should have good cows，”Gu Jicheng said. This is the fundamental for a healthy milk industry as proven by both domestic and foreign tests and practices. Good cows and the technologies of raising good cows can contribute 40% of the milk cow feeding industry. The world record of 11-ton milk output per unit in Israel is a positive result of the attention paid to the high-quality breed. 95% of the milk cows in Israel are the Holstein cows that are highly adjustable and productive.

In recent years， China imported a lot of high-quality milk cows from foreign countries. But how to raise these cows and make them breed new cows is still a problem since it is hard to import good breeding oxen.

In addition， the forage grass industry in China is not that developed as well. Right now it is still far away from the “industry”， thus it could not provide enough material guarantee for the high yield of milk. Presently， most milk cows in China cannot have high-quality forages.

If the cows are fed with enough silo corns， the milk output per unit can be increased to six tones. If 3 kilograms of clover are added into the daily forage， the annual output per unit can be increased by one ton. In recent years， the planting area of silo corns increased to 21 million mu （about 3.5 acres）， but was still far away from meeting the demand of milk cows.endprint

According to the estimation， China needs 200 million tons of silo corns an- nually and the gap of the supply of clovers reaches 800 thousand tons， which is mainly based on importation. Therefore， it is a necessary and emergent task to enhance the development of forage industry and improve the milk quality from the very start.

Another hurdle is the insufficient modernized and scientific method of raising milk cows. Previously， the individual farmers who raised fewer than ten milk cows raised these animals as cattle or even pigs.

The promotion of large-scale feeding seems to be solving the problem as the scientific use of forages and careful management are spreading among the large milk farms in China. But the general level is still quite low. Most milk cow feeders do not know that there are standards and rules to be followed for raising milk cows， the hygiene and disease control and the epidemic prevention.

Supporting Policies to Be Highlighted

From the “melamine event” in 2008， the Chinese government spent a lot of money supporting the dairy industry. But how much effect have these supports been paid off？ And do they need to be reviewed or revived？

From 2008 to 2012， the central government of China improved 3000 standardized milk cow feeding areas， imported 53 million high-quality milk cows and enhanced the production conditions of over 60 dairy projects featuring the infant formula. As of 2012， the central government set up a special fund for the risk detection and troubleshooting of dairy products and infant formula.

In addition， many local governments have set up their own funds to support the development of local dairy industry. It is unwise to say the China is thrifty in the milk industry.

But， as some experts revealed， the money and supports did not gain what they deserve. Some of the experts even said that the governmental efforts were put into the wrong direction in the wrong way.

Years ago， the concepts of big meadows and super meadows were very popular as it seemed that size meant everything. However， the oversized meadows were not only unsustainable， but also failed to bring positive influence over the farming. Right now， 63% of the raw milk is still supplied by individual milk cow feeders. People could not help but wonder： why the big meadows， which got a lot of subsidies from the government， cannot do something against the milk famine.

In March 2013， China Association of Dairy Industry made an investigation into the milk source bases in 14 provinces/municipalities/autonomous regions in China. They found that the self-built meadows of dairy industry have difficulties in finding proper talents and connecting the enterprises with the milk cow farmers.

Then， how should the government run the “subsidies”？ “The ‘big meadows+ self-built meadows by enterpriseswhich were sufficiently supported by the government is actual wrong. And it is the time to adjust it，” Song Liang said.endprint