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Are China's Ranches in Jeopardy?

2018-11-08 09:49 Thursday


China's ranches, a major component in the world's largest dairy consumer market, have become less profitable in recent years. Last year, three prominent companies – Modern Farming, Shengmu and Xinjiang Western Animal Husbandry Co., Ltd. -- incurred substantial losses.

Net profit of Modern Farming was -975 million RMB, down 244.8% from 2016; - 986 million RMB for Shengmu, down 31.4%, and - 367 million RMB for Xinjiang Western Animal Husbandry, a fall of603%.

The three above-listed companies are all large animal husbandry companies, whose main business is running large ranches and selling raw milk. The substantial losses they have incurred have drawn attention to the plight of large  animal husbandry companies in China, leading many analysts to conclude that "large ranches are not suitable in China".

Low milk prices may become the norm in an increasingly globalized dairy industry. There are differing views within the industry, as to whether China's ranches can compete in this hyper-competitive environment.

Large animal husbandry companies such as Shengmu and Modern Farming still have full confidence in the future of large ranches in China. They believe that such ranches have advantages in product quality, quality assurance and economies of scale. As projected demand for dairy in China will soar to 58 million tons by 2020, there is still room for ranches to grow, in both scale and product quantity. Although the industry faces short-term stagnant growth,  large-scale pastures can effectively utilize resources and realize optimal efficiency. However, animal husbandry firms also acknowledge that further improvements are required with regard to dairy cow variety, breeding technology and management.

china's ranches

In contrast, many dairy experts tend to believe that large ranches are not suitable for in China. China's dairy industry has been fully integrated into the international market;  the cost of large-scale ranching is high, with no prospect of significant cost reductions, has and offers no advantages against international competitors. Industry analysts suggest that large ranches should be restructured as quickly as possible, and that the longer it takes for these changes to take place, the higher the cost on firms.

Furthermore, they note that domestic and international animal husbandry companies play different roles in the market, with each possessing unique advantages. In their view, the best strategy for domestic producers to undertake is to develop low temperature milk capabilities, while increasing the price difference between cold and normal-temperature milk, and in this way counteracting the high cost of domestic milk production.

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