In 2008, the widespread melamine scandal severely disrupted China’s milk production as well as consumer confidence and trust in dairy producers. Since then, the government has taken steps to enforce new regulations and gain better control over the quality and safety of domestic dairy products. Due to these restructuring processes, many small farmers had to exit the market which translated into a noticeable decline in milk production in 2013 and 2016.
Most recently, dairy production volumes are picking up again. Nevertheless, China still relies heavily on dairy imports. The European Union is the leading dairy supplier for the Chinese market accounting for almost half of all imports as of 2016. Milk powder is the main imported dairy product in terms of its import value, yet yogurt leads imports in terms of its import volume growth rate. In 2016, yogurt imports to China more than doubled compared to the previous year. Many Chinese consumers generally associate products like yogurt and sour milk with benefits to health, especially for the digestive system.
Besides yogurt, cheese is another rapidly emerging product category. As Chinese consumers are becoming increasingly familiar with western lifestyles and food, cheese sales are expected to grow by almost 16 percent between 2016 and 2021. Butter, margarine, milk formula and milk are also among the increasingly demanded dairy product categories.
Despite the increase in dairy imports and sales, dairy consumption per capita is still much lower in China than the rest of the world, even when compared to countries like Japan, which shares similar dietary habits to China. Therefore, Chinese dairy market expansion will likely be driven more by the rising price of raw milk and increased premium product options. Surveys show that more urban Chinese consumers are willing to spend money on niche, high-end, organic, and healthier products, hence slowly shifting the dairy industry development direction from scale growth to product upgrade.