Multinationals Continue To Struggle In Chinese Dairy Industry

The withdrawal from China of Meiji Holdings, a Japanese baby milk manufacturer, is the latest example of a foreign company facing difficulties in the Chinese dairy market as the government tries to consolidate the market.

Last week, Meiji announced that they would be leaving the Chinese baby milk market, citing that costs from importing Australian milk powder were too great to continue operating in the country. The Japanese firm has had to import its milk from Australia since 2010, when a foot and mouth outbreak damaged the local supply. There has been some speculation that declining Sino-Japanese relations, as well as the nuclear leak at Fukushima, has damaged the company's sales in China. Some estimates have put a decline in sales of 90% following the 2011 tsunami and nuclear disaster.

Though one of the most promising Chinese markets, foreign companies have found it difficult to establish themselves in earnest in the dairy sector. Multinationals are increasingly turning to the premium end of the market, as domestic firms gain greater share overall. For instance, Nestlé aims to boost sales through distribution channels such as hotels and restaurants. Danone is suspending production at its Shanghai yoghurt plant as part of its restructuring strategy to focus on premium brands in China. Danone also plans to focus its investment efforts on China's first-tier cities such as Shanghai and Guangzhou, in which rapidly rising consumer affluence is translating into a growing demand for higher-value consumer products. Meanwhile, New Zealand-based dairy cooperative Fonterra is reconstructing its dairy farms in the north-east of Beijing. The company plans to build its own large-scale dairy farms in order to ensure the quality of its products. Fonterra expects to construct three dairy hubs in China.

Growing Demand Yet Multinational Problems
Milk Sales (Tonnes)

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This article is tagged to:
Sector: Food & Drink
Geography: China

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