The foreign capital dairy enterprises, which have paid more attention to China's market nowadays, have turned its priority of investment from the factories building to the channel innovation in China due to the consumption environment changes.
According sources, the cooperation between the FrieslandCampina and China Huishan Dairy Holdings Company Limited for establishing the new factory in China has got no substantial progress; the French dairy tycoon Sodiaal has also suspended its plan to set up factory in China. Furthermore, the operating rate of the processing factories of a number of foreign dairy brands in China has declined.
In just five years, the foreign-funded enterprises have completely changed their attitude and the operating methods from the intense investing in production in 2010 to the disinvestment in 2015.
According the source of the industry, more and more foreign enterprises transferred the production department to the counties with low production costs and introduced their products to the mainland market by means of cross-border E-Business and traditional import and export trade, as the high circulation fees tends to be even higher and the domestic consumers of China are highly depend on the imports.
The players of the industry predict a further decline in the output of the foreign-founded brands in China during 2016, which would on the contrary exert even greater operating pressure to Chinese enterprises.
Investing in China is paused
The Chinese dairy enterprises went abroad to find milk source or set up the supply base one after another, while the foreign-funded enterprises paused their plan of establishing or expanding the production in China.
The FrieslandCampina and the Huishan Dairy, who intended to invest in a joint venture of the milk powder business in terms of the production, development and market, have suspended their plan in 2015; besides, the Sodiaal has also been at a deadlock in regard of its project of starting business in China.
Not only the plans for the construction of new plants have not been carried out, but the operating rates of the foreign-funded factories located in China have continually dropped.
For example, Abbott shut its plant in Guangzhou in the early 2014 and transferred part of its production to the plant in Zhejiang Province; with the shutdown of the plant, workers faced with the fate of been fired or been transferred.
In fact, the foreign-funded dairy enterprises were positive on building new plants in China just five years ago. In 2010, MeadJohnson established its first science and research center in China in Guangzhou, in which it constructed its 12th nourishment plants around the world to localize the production in China with the cost of RMB200 million; it also established the science and research center in Shanghai the same year. From the passionate star-up to the passive reduction, the changes the foreign-funded dairy enterprises have suffered astonished the peers of the industry.
The domestic products were defeated by the imports
The "changes' mainly laid in the transformation among the distribution channel. Instead of buying the dairy products in the traditional shops and supermarkets, more and more consumers tend to shopping online, including the overseas online shopping, which could save a great deal of circulation fees for the enterprises, especially for the foreign-funded ones; thus the foreign companies began to pay more attention in the channels of original packaging imports or cross-border E-business.
The complicated procedures and high costs among the circulation channel is where the differences in China lie against that of the oversea market. The terminal prices of the products, especially the dairy products of foreign brands, are usually quite high in domestics market due to the existing circulation channel, which restrained the sales of these brands in some degree. However, the situation would be changed with consumers' growing dependency upon the overseas online shopping and other online channels.
"As the imports of the small-packaged infant formula surged in 2015 and the competition among the dairy enterprises intensified, the pricing of the foreign-brands dairy products has been declined; therefore the foreign enterprises have to turn to the online channel with lower costs.' said the source of the industry.
The foreign-funded dairy enterprises transferred their production bases overseas in 2015, or marched into China's market through the channels of E-business or traditional import and export trade, by the means of which they achieved guaranteed and stable profits, satisfied the consumers' psychological needs that overseas milk source and production base are more trustable, and avoid the queries "that the prices been pushed up deliberately' from the consumers.
It's been reported that the domestic demands for the milk powder has been 600 thousand tonnes, while the foreign infant formula came from overseas reached 200 thousand tonnes in 2015, accounts for 1/3 of the total demands. And the proportion of the imports is expected to further increase.
The domestic enterprises would be squeezed
With the release of "the universal two-child policy' in China, the domestic demand for the milk powder would keep strong, thus the imports on the foreign-brands powder would improve in 2016.
Song Liang, the senior analyst of dairy industry, predicted that the imports of the infant formula in 2016 may increase to 300 thousand tonnes, and accordingly, the domestic dairy enterprises would face greater strike.
Facing with another flow of overseas milk product, those in the dairy industry hold a negative attitude towards the prospect of the domestic enterprises.
According to Song Liang, as the foreign milk powder pricing system is gradually in line with the domestic system, the price would no longer be disadvantage of foreign brands; what's more, with the further promotion of its brands, it would permeate to the third or four-tier market step by step and thus caused tremendous strike to the domestic enterprises; besides, there are various of uncertainties that the domestic enterprises ventured to go abroad to purchase the raw milk and establish plants since there's no successful cases of the kind until now.
*This article is a re-edited and translated version by CCM. The original version comes from www.cnchemicals.com/.
If you would like to know more about what's happening in China, please keep following us on CCM Perspective. We will keep you updated about China.