Customized report service – Powdered milk in China

Summary

China mainly imports skim powdered milk as an ingredient to meet demand in the food processing and infant formula sectors. New Zealand dominates the import market, followed by the European Union (EU), Australia, and the United States (US). Canadian powdered skim milk exports to China are negligible, with exporters largely made up of small-scale producers.

Yili (Inner Mongolia Yili) and Nespray (Nestlé) are the leading powdered skim milk based brands. Inner Mongolia Yili is a state owned company, which, among other domestic producers, dominate the market for domestic drinking milk products, including powdered milk.

The Chinese government has encouraged domestic dairy companies to invest in overseas production facilities and import much of the powdered milk they manufacture. For example, Inner Mongolia Yili Industrial Group has invested in facilities in New Zealand and Australia, while Heilongjiang Feihe Dairy has invested in a plant in Kingston, Ontario (PDF).

International powdered milk manufacturers have adopted a lower pricing strategy to compete with domestic Chinese brands. This has resulted in rapid market penetration mainly via ecommerce, which is the fastest growing channel in China. Online shoppers tend to be young and urban, living in top-tier cities but this profile is expected to change as more Chinese consumers from lower tier cities connect online.

Consumers aged 18 to 29 and 30 to 44 are driving China's growing consumption rate, especially in health and wellness food products. Dairy products are the most popular imported food products partly due to perceived higher safety and quality over domestic dairy products.

Consumer profile

Chinese low-income households make up the country's largest social class at 366 million people. It is expected that lower middle class households will become the country's largest social class at 378 million people by 2030. Combined, low income and lower middle class households consist of 711 million people, or 62.3% of China's 1.14 billion population.

At 202 million people, China's middle class is the country's fastest growing social class and expected to remain so through to 2030. Income inequality in China is an ongoing issue but the income gap is closing slowly, in line with rises in the minimum wage. Average annual disposable income per rural and urban Chinese household is US$11,713 and US$19,498 (2017) respectfully. In comparison, average annual disposable income for rural and urban Canadian households is US$54,606 and US$67,382 respectfully.

Consumers aged 18 to 29 and 30 to 44 are driving China's growing consumption rate, especially in health and wellness food products. Interest in imported food products is strong, partly due to perceived higher safety and quality of imported food products compared to domestic food products. Dairy products are the most popular imported food products due to several domestic food safety incidents in 2008 and 2010. In these incidents, melamine was found in the products (including powdered milk) of 22 Chinese dairy companies - one out of every five suppliers in China. This resulted in the deaths of six babies and was linked to 300,000 illnesses.

Due in part to government and industry education campaigns, consumers perceive fresh milk to have a higher nutritional value versus other milk products such as powdered and shelf stable milk, leading to an increase in fresh consumption. Fresh milk consumption is reaching saturation levels in first-tier cities like Beijing and Shanghai. Consumption growth in fresh milk is being led by third and fourth tier cities.

The Guangdong region is China's largest in terms of total consumer spending due to its large population and strong economy. Consumer spending in Tianjin and Ningxia regions is forecasted to grow the fastest in China between 2018 and 2030, owing to a rise in manufacturing investments.

Companies and brands

Skim powdered milk is mainly used as an ingredient in food processing and infant formula products in China. Yili (Inner Mongolia Yili) and Nespray (Nestlé) are the leading powdered skim milk based brands with 13.3% and 6.4% market shares respectfully. Inner Mongolia Yili is a state owned company, which, among other domestic producers, dominate the market for domestic drinking milk products, including powdered milk, mainly due to their competitive advantage in distribution and consumer awareness.

Leading national brands of powdered skim milk by market share (%)
Brand Name Company Name 2013 2014 2015 2016 2017
Yili Inner Mongolia Yili Industrial Group Co Ltd 13.0 12.8 13.0 13.2 13.3
Nespray Nestlé (China) Ltd 6.0 6.2 6.4 6.5 6.4
Firmus (in Chinese only) Heilongjiang Feihe Dairy Co Ltd 4.5 4.5 4.8 4.9 5.0
Nestlé (in Chinese only) Nestlé (China) Ltd 2.0 2.0 2.1 2.1 4.8
Sanyuan (in Chinese only) Beijing San Yuan Foods Co Ltd 3.7 3.6 3.6 3.5 3.6
Source: Euromonitor International 2017

Retail sales and distribution

Retail sales of powdered milk in China grew at a compound annual growth rate of 4.3% between 2013 and 2017 and is expected to continue growing by 5.2% between 2018 and 2022.

Sales of powdered milk, 2013-2017 (US$ millions)
2013 2014 2015 2016 2017 CAGR* % 2013-2017
2,109.5 2,274.8 2,311.3 2,386.8 2,494.3 4.3%

Source: Euromonitor International 2017

*CAGR: Compound annual growth rate

Sales of powdered milk, 2013-2017 (US$ millions)
2018 2019 2020 2021 2022 CAGR* % 2018-2022
2,618.2 2,745.9 2,887.0 3,039.2 3,202.4 5.2%

Source: Euromonitor International 2017

*CAGR: Compound annual growth rate

Grocery stores represent 87.3% of food retailers that carry drinking milk products, including powdered milk based products. The number of Chinese consumers purchasing milk products online has tripled from 3.1% in 2013 to 9.5% in 2017. Online food shopping over the same period has increased by approximately 500%. Between 2017 and 2022, growth in online food shopping is expected to slow to 91%.

International powdered milk manufacturers have adopted a lower pricing strategy to compete with Chinese brands that has resulted in rapid market penetration mainly via ecommerce, which is the fastest growing channel in China. Online shoppers tend to be young and urban, living in top-tier cities but this profile is expected to change as more Chinese consumers from lower tier cities connect online.

China distribution channels of drinking milk products by market share (%)
Channel 2013 2014 2015 2016 2017
Supermarkets 32.4 32.0 31.8 32.2 32.3
Independent small grocers 25.2 24.0 23.3 21.8 20.8
Other grocery retailers 21.9 19.9 19.3 18.5 18.0
Hypermarkets 13.9 14.2 14.5 14.8 15.3
Internet retailing 3.1 6.2 7.3 8.8 9.5
Convenience stores 3.3 3.5 3.6 3.7 3.9
Discounters 0.2 0.2 0.2 0.2 0.2
Total 100.0 100.0 100.0 100.0 100.0
Source: Euromonitor International 2017

Powdered milk imports

New Zealand dominates the imported skim powdered milk market with a 46.5% share, partly due to its free trade agreement with China. The EU, Australia, and the US are the other major suppliers of powdered skim milk to China. EU countries, led by Germany, occupy a major share of the Chinese market, partly due to lower pricing and an import ban on Russian powdered milk. Skim powdered milk and whole powdered milk are used relatively interchangeably by Chinese dairy manufacturers, which sometimes substitute skim powdered milk for whole powdered milk when prices are low enough to compensate for the quality difference.

The Chinese government has encouraged domestic dairy companies to invest in overseas production facilities and import much of the powdered milk they manufacture. For example, Inner Mongolia Yili Industrial Group has invested in facilities in New Zealand and Australia, while Heilongjiang Feihe Dairy has invested in a plant in Kingston, Ontario (PDF). Canadian powdered skim milk exports to China are negligible, with exporters largely made up of small scale producers. However, with the Heilongjiang Feihe Dairy investment, powdered milk imports from Canada could increase significantly.

Top five exporters of powdered skim milk to China (Harmonized system code 040210), Can$
Country 2013 2014 2015 2016 2017 CAGR* % 2013-2017
New Zealand 529,150,705 574,584,583 378,913,163 303,325,940 363,455,972 −9.0%
EU 28 158,517,153 324,994,979 133,612,159 117,921,142 215,989,785 8.0%
Australia 58,817,844 88,153,740 73,758,540 68,749,791 120,938,980 19.7%
United States 221,003,695 232,201,036 66,640,480 37,551,523 77,565,965 −23.0%
Rest of the world 8,342,679 15,705,750 1,860,410 1,251,448 2,816,043 −23.8%
Canada 0 0 49,428 13,707 12,671 NA
Total 993,761,788 1,238,560,115 656,805,438 529,144,874 780,802,109 −5.9%

Source: Global Trade Tracker, 2018

*CAGR: Compound Annual Growth Rate

NA: Not Applicable

Transport channels

China has been rapidly developing its road and rail networks, which consist of cross country highway, freeways and rail lines to improve freight transport and product distribution networks.

China's major milk producing regions are located in the north of the country and the majority of consumers are in the south. China's underdeveloped cold distribution chain means that many dairy consuming facilities use whole powdered milk instead of fluid milk during the summer months in order to avoid cold chain complications and higher transportation costs. China's peak milk production runs from December to March, when many dairy facilities convert their milk to whole powdered milk for the summer months. Milk production is at its lowest during peak consumption from July to September.

For more information

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found on the International agri-food market intelligence page, arranged by region.

For additional Information on Food & Hotel China trade show, please contact:

Ben Berry, Deputy Director
Trade Show Strategy and Delivery
Agriculture and Agri-Food Canada
ben.berry@canada.ca

Resources

Prepared by Kris Clipsham, International Market Analyst, Global Analysis

© Her Majesty the Queen in Right of Canada, represented by the Minister of Agriculture and Agri-Food (2018).

To join our distribution list or to suggest additional report topics or markets, please contact:

Agriculture and Agri-Food Canada, Global Analysis
1341 Baseline Road, Tower 5, 3rd floor
Ottawa, Ontario
Canada, K1A 0C5
Email: aafc.mas-sam.aac@canada.ca

The Government of Canada has prepared this report based on primary and secondary sources of information. Although every effort has been made to ensure that the information is accurate, Agriculture and Agri-Food Canada (AAFC) assumes no liability for any actions taken based on the information contained herein.

Reproduction or redistribution of this document, in whole or in part, must include acknowledgement of Agriculture and Agri-Food Canada as the owner of the copyright in the document, through a reference citing AAFC, the title of the document and the year. Where the reproduction or redistribution includes data from this document, it must also include an acknowledgement of the specific data source(s), as noted in this document.

Agriculture and Agri-Food Canada provides this document and other report services to agriculture and food industry clients free of charge.

Date modified: