Summary: Although farmgate milk prices in China took a dive in 2014 as supply
increased, the leading listed dairying businesses still achieved rapid revenue
growth.
Source: Bing
During April-May, China's leading farm milk producers released their 2014
full-year financial reports in succession. Despite the price erosion, these
enterprises still grew strongly. Notably, several increased their sales by
50%+: China Modern Dairy Holdings Ltd. (Modern Dairy), China Shengmu Organic
Milk Limited (China Shengmu) and Xinjiang Western Animal Husbandry Co., Ltd.
(Western Animal Husbandry). YuanShengTai Dairy Farm Limited (YST Farm) also
achieved 30%+ growth.
This can be attributed to:
- The combination of volume growth with relatively high sales prices. For
instance:
China Shengmu
-
Organic milk: 205,492 tonnes, up 122.6%; priced at USD909.9/t
(RMB5,590)
-
Standard milk: 139,204 tonnes, up 24.9%; priced at USD773.2/t
(RMB4,750)
-
YST Farm: 230,121 tonnes, up 25.3%; priced at USD826/t
(RMB5,052)
The purchase price of raw milk in China averaged at USD658/t.The purchase price
of raw milk in China averaged at USD658/t.
The increases in volumes simply reflected the rising output from larger herds
achieving improved milk yields, whilst strong prices reflected the market's
strong demand for high-quality raw milk, making it a seller's market.
- The companies' success in launching processed dairy products
This business became an important element in each enterprise's performance in
2014:
-
Modern Dairy: sales from liquid milk reached USD136.2 million
(RMB833 million), up 159.1% and accounting for 16.6% of total revenue
-
China Shengmu: sales from liquid milk were USD120.8 million
(RMB739 million), up 143.9% and making up 34.7% of total revenue
-
Western Animal Husbandry: sales from dairy products came to
USD41 million (RMB251 million), up 17.4% and making up 32% of total
revenue
Key factors behind such growth were the companies':
-
Integrated supply chains, making it easier for their product
quality to be recognized by consumers
-
Increased A&P spend, which drove up the sales volumes
Key
Milk Producers' Financial Performance, 2014
|
Company
|
Revenue (million USD)
|
Change
|
Net profit (million USD)
|
Change
|
|
Modern Dairy
|
817.7
|
52.8%
|
124.1
|
50.5%
|
|
China Shengmu
|
346.7
|
86.4%
|
115.6
|
117.3%
|
|
YST Farm
|
188.8
|
32.0%
|
68.0
|
92.3%
|
|
Western Animal Husbandry
|
125.3
|
70.9%
|
3.7
|
-17.3%
|
Source: Company reports
Leading Milk Producers' Key Operating Data,
2014
|
Company
|
Cows (head)
|
Sales of raw milk (t)
|
Output per cow (t)
|
Sales price (USD/t)
|
|
Modern Dairy
|
201,507
|
931,334
|
8.9
|
820
|
|
China Shengmu
|
103,252
|
344,696
|
-
|
858
|
|
YST Farm
|
44,623
|
230,121
|
9.4
|
826
|
|
Western Animal Husbandry
|
40,000
|
39,709
|
-
|
-
|
Source: Company reports
Rising global milk supply, including but not restricted to a rising EU supply
post-quotas, threatens such businesses to some extent. GDT on 19 May saw its 5th successive decline: using more imported milk powder will be an obvious
attraction once stocks clear. However, this is likely to stimulate growing
clamour for government policies favourable to local dairying. Hence the
flipside is that the main milk producers should benefit from state efforts to
encourage dairy processors to use more local raw milk.
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