Navigating China’s Oversupply: Growth Strategies in Dairy
After nearly 30 years of dynamic development, China’s dairy sector has emerged as the world’s second-largest. According to NielsenIQ, however, this juggernaut now faces a critical juncture: production has surged while per‑capita consumption lags behind. Between 2018 and 2024, raw milk output jumped 31.6%, while productivity per cow improved 11.7%. Yet in the same period, per‑capita dairy intake rose just 3.3%, triggering oversupply strains .
To correct the supply-demand imbalance, Chinese authorities have implemented capacity controls and promoted broader usage of raw milk. Nevertheless, the core challenge remains consumer stimulation. NielsenIQ stresses that differentiation in product innovation and distribution channels is essential to reignite demand .
The report outlines two engines for growth: Volume and Value. On the volume side, the business-to-business (B2B) segment is key. In 2024, catering revenue reached ¥5.618 trillion, and the ready‑to‑drink tea market hit over ¥350 billion—promising platforms to fold dairy ingredients into mass consumption . Meanwhile, NielsenIQ notes an untapped opportunity in China’s 310 million lactose-intolerant individuals: lactose-free and low-lactose milks comprise less than 3% of total milk shipments, underscoring potential for specialized product innovation .
Value growth is equally pivotal. As discretionary spending softens, premiumization becomes a differentiator. Despite an 8.6% drop in standard milk sales, organic milk rose 0.2% and A2 milk by 5.7%—products commanding over 60% price premiums . Moreover, emotional-drink innovation—such as “goodnight milk” and culture-themed ice-creams—addresses GenZ’s appetite for functional plus experiential offerings .
For smaller regional players, NielsenIQ suggests four strategic imperatives: focus on specific niches, speed through local supply chains for freshness, innovation in product and marketing, and expansion—either scaling nationally or diversifying product lines . Practical tactics include targeting underserved local markets, protecting IP (termed “guerrilla patenting”), and setting new category standards, such as milk uniquely suited for cafés .
These insights mirror broader market trends. Reuters and BTG Ingredients report that milk consumption fell 6.9% year-on-year as of March 31, 2025, driven by demographic slowdowns and weakened consumer sentiment .
Industry Insight:
China’s dairy sector stands at a crossroads—the supply boom must be matched with savvy demand-generation. Success relies on a dual strategy: embedding dairy into large-scale foodservice and tea markets while premiumizing through health- and emotion-driven products. Niche agility, IP protection, and regional strengths will be critical for players to thrive in this evolving environment.
Source : Dairynews7x7 June 18th 2025 Read the full story here
