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. Currently, two major dairy processors – Inner Mongolia Yili Industrial Group and China Mengniu Dairy Company – dominate the market.
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. Whey, bulk packed milk, and milk powder are the main imported dairy products in terms of their import volume. Cheese is another important and rapidly emerging product category. As Chinese consumers are becoming increasingly familiar with western lifestyles and food, cheese sales are expected to grow by around 11.5 percent between 2019 and 2024. Butter, yogurt, and sour milk products are also among the increasingly demanded dairy product categories. Many Chinese consumers generally associate products like yogurt and sour milk with benefits to health, especially for the digestive system.
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.