What are the chances of winning a price war between domestic dairy enterprises and the European Union?

Dairy products have always been indispensable in life, whether children or adults or the elderly will drink a little milk, yogurt, then the road of dairy enterprises is really red? The competition of dairy enterprises can not be ignored, whether at home or abroad, the pressure of this industry is also very great, the road is not easy to go.

Although the domestic milk pouring incident has eased recently, the competitive pressure faced by domestic dairy enterprises has increased unabated. The milk quota system in EU countries has been officially abolished, and this policy change is expected to lead to a rapid increase in global milk supply this year, while the transmission effect will quickly affect domestic dairy products.

According to the forecast of the EU Dairy Industry Alliance, after the quota system is officially abolished on April 1 this year, global milk supply is expected to rise by 2% to 4% this year. The Netherlands, a big milk producer, forecasts that EU milk production will increase by 4 billion litres by 2020, while Ireland forecasts that its dairy production capacity is expected to double in the next five years. Who do you sell the doubly produced milk to? The answer given by EU countries is almost the same-China.

Although it accounts for a small proportion in the import of dairy products, China's infant formula mainly comes from the European Union. Data show that in 2014, EU products accounted for 71.8% of the original infant formula imported into China, and the market share was absolutely dominant.

Review of the quota system of Milk production in Europe

Before 1984, the supply of dairy products in the European Union exceeded demand, and fresh milk that could not be sold at its worst was poured directly into the sewers. At that time, the EU made production quotas in order to avoid structural milk overproduction and protect the purchase price of milk. Under this quota system, each member country is allocated a corresponding milk production quota, and then these quotas are allocated to each farm.

The actual operation of the quota system established by the EU is very complex. Governments first need to measure the quota for each farm in terms of the number of cows, and then charge fees in advance for farms that may overproduce. If a country exceeds its milk quota, the tax levied in advance will be used to pay a fine for "overproduction", also known as a "super tax" (Super levy). Government quotas have become an "asset" of farms, and in some countries, "quotas" are even allowed to be traded between farms.

The European milk production quota system has been implemented in EU countries for more than 30 years. The original purpose is to protect the dairy industry of various countries and avoid excessive competition. Daniel, spokesman for Agricultural Policy of the European Commission. Rosario believes that the purpose of abolishing milk quotas now is to give milk producers in EU countries more flexibility to respond to changes in market demand. "there are 5400 dairy processing enterprises in the EU, which have solved the employment of 300000 people, and they deserve the opportunity to fully benefit from the global consumer market, especially the Asian market." Mr Rosario predicts that global imports of dairy products will grow by an average of 2 per cent a year over the next few years, and the EU will be able to cope with this extra demand.

A spokesman for the Dutch Dairy Association said bluntly that EU quota restrictions gave the United States and New Zealand an opportunity advantage to seize the global market, and the lifting of the restrictions would bring great opportunities for Europe.

After the abolition of the quota system, how much milk farmers should produce no longer depends on EU government documents, but on their own according to market demand. For this policy reversal, finally walking independently of the EU milk market is mixed. Especially in some EU countries where milk prices are not comparable to those of mineral water, the problem has become more complicated.

The deregulation of EU milk production has made many small dairy farmers feel sense of security-free, fearing that large farms will drive down market purchase prices-because milk prices in many EU countries are indeed so low that there is no bottom line. According to common sense, too much milk production will trigger wholesale prices to fall again, making many already complaining small farmers in the European Union even more pessimistic, fearing being kicked out of the market by big dairy farmers. Some farmers have publicly told the media that their sons will no longer be dairy farmers.

But some people are happy and others are worried about the cancellation of the quota. Agriculture is a strong point in Europe, with the European Union producing 22% of the global market for beef and milk accounting for more than 21% of global production (12.5% in the United States). At the same time, the European Union accounts for 32% of the global market for cheese and skim milk powder. Over the past five years, despite quota restrictions, EU dairy exports have increased by 45 per cent and the market value has almost doubled (up 95 per cent).

South Korea is a particularly proud special case of EU milk exports. EU statistics show that EU dairy exports to South Korea doubled from 2010 to 2014. Compared with South Korea, on the contrary, the contribution of the Chinese market is not obvious enough, and there is a lot of room for rise.

As the milk champion of the European Union, German dairy farmers are full of confidence and actively respond to the challenge. They believe that the future of German dairy industry is not domestic sales in the European Union, disturbing milk prices in the European Union, but exports to emerging dairy consumer markets in Asia, including China.

Not only Germany and France, but also Poland have quietly entered the Chinese market for yogurt. Fresh yogurt has a shelf life of about a week, but Polish room temperature yogurt can last as long as eight months in order to conquer the Asian market thousands of kilometers away.

Understand the lethality of EU milk prices

How low is the price of milk within the European Union? In large milk-producing countries such as Britain, France and Germany, EU farmers average less than 0.28 euros per liter of milk, or about 2 yuan, which can only ensure that dairy farmers can barely survive. Of course, as a daily necessity, milk is a kind of agricultural product with special status and enjoys subsidies all the time. In the UK, VAT on many dairy products, including infant formula, is zero for convenience.

For example, a liter of skim milk from Tesco's own brand in the UK costs 0.70 pounds (6.85 yuan), while Carrefour in France costs slightly more, 1.13 euros (8.6 yuan) a liter.

Compared with France and Germany, the living condition of dairy farmers in Britain is the most worrying. British people consume a lot of fresh milk every day, and their dependence on milk is as important as potatoes and bread. So British supermarkets prefer to start a price war with this daily necessity. In order to make the price of milk low enough to be attractive, supermarkets sell their own milk at a loss. Generally speaking, only organic milk can be sold at a price of more than 10 yuan per liter.

Milk is cheaper than water (mineral water), and British society is beginning to worry about the fate of cows-an unhealthy price war that will make free-range cows a thing of the past. As a result, European Union farms produce milk in a way similar to that of chickens raised in captivity in the United States. cows will never see the light of day, and milk prices and dairy products will fall together, entering a vicious circle.

There is a great disparity in the strength of milk production among EU countries. Of the 28 eu member states, half of the milk comes from Germany, France and the UK (21 per cent, 18 per cent and 10 per cent), plus the Netherlands, Italy, Poland, Spain and Ireland, which accounts for 80 per cent of eu milk production. The remaining 20 EU member states produce only 20% of the EU's milk. This ranking has not changed in the past 10 years. At a time when Germany has been complaining that there is a quota limit for milk production, 13 countries in the European Union fall short of the quota limit every year.

In 21 of the 30 years of milk quota, German production has exceeded the quota limit, so a fine is paid every year. Over the past 30 years, German farmers have paid about 15 billion euros for milk quotas and fines, according to estimates by the German Farmers' Union (DBV).

Germany, France and Italy account for 60% of Europe's cheese exports, while Germany and Poland add 16%, according to the European Commission. Estimates made by Ernst & Young last September showed that with the abolition of milk production quotas, Germany will take the lead in all categories related to milk.

Take Heideland, a farm in southern Berlin, which has 1200 cows. In order to ensure that the cows can produce more milk, they bought a "cow massage robot hand" and massaged the cows several times a day with a robot arm with a rotating brush. It is said that this will help cows to increase milk production in happiness.

In addition, the farm has invested 8 million euros since 2012 to buy massages, automatic milking devices that can be milked three times a day, and the farm's methane energy conversion system.

Heideland is just one of the farms that are happy to welcome the "liberalization" and "marketization" of EU milk production. Many German farmers have bought high-quality dairy cows and advanced machinery and equipment in the past two years, and plan to make a large-scale attack on Asia's emerging milk consumption market, including China.

The abolition of the quota system means that in the future, the milk production of EU countries will develop freely according to their production capacity and market demand, and will no longer be restricted by government quotas. It will also mean an increase in the global supply of dairy products.

Under the quota system, EU dairy exports have continued to grow rapidly over the past five years, with exports rising by 45 per cent and exports by 95 per cent. "the liberalization of dairy production quotas in Europe has brought three direct challenges to China: first, the price advantages of products and raw milk are obvious, and those relatively cheap brands of milk powder in Europe will be more competitive; second, the brand advantage is obvious. especially at present, some Chinese consumers are superstitious about overseas dairy products, while Europe is the birthplace of modern dairy industry. From milk, cheese to formula, enterprises and brands can be found everywhere for hundreds of years. Third, Europe has strong strength in dairy processing technology, new product research and development and other fields, the industrial structure is very mature, the upstream and downstream are closely linked, and the ability to resist risks is very strong. "

"if European dairy products come, it may impact the traditional price system of the domestic dairy industry and erode the market share of domestic enterprises. At present, the price cost of imported normal temperature milk is lower than that of domestic normal temperature milk, resulting in a price upside down. " Wang Ziheng, a dairy expert, predicts that now that the quota system for milk production in Europe is officially abolished, the domestic market may pour into Europe to import a large number of normal temperature milk products and infant formula products.

The main sales market of EU products is China.

Some dairy experts believe that affected by the crisis in Ukraine last year, the Chinese market will become the next way out for EU milk. "China imported 185000 tons of liquid milk the year before last, but last year it increased to 295000 tons." He predicted that China's consumption of imported milk would exceed 400000 tons this year.

The big dairy countries of the European Union also benefit most from exporting dairy products. Many of the normal temperature milk products that have sprung up in the Chinese market come from the European Union, especially Germany. Examples include the German Shepherd Brand and Oldenburger, a brand even set up by German dairy companies for the Asian market. German milk is relatively cheap and has an obvious cost advantage in exports. For example, Switzerland, which is not a member of the European Union, is famous for producing the highest quality milk in the world, but the price of Swiss milk is also the highest. The price of the same kind of cheese produced in Switzerland can be three times that of Germany.

In January, DMK opened an office in Shanghai to prepare for a foothold in the Chinese market, said Coldes, a spokesman for DMK Dairy, Germany's largest dairy manufacturer, which accounts for 1Compact 4 of the total output.

The company calculates that German farmers have invested 500 million euros in cheese making and milk disinfection equipment over the past five years. DMK admitted that the European market is limited. Russia used to be Germany's largest consumer of cheese, but Russia has been banned from importing dairy products from the European Union since last year. Therefore, whether it is Germany, Ireland or the Netherlands, these big dairy producers can only target exports to Asia and the Middle East, while the Chinese market is the top priority.

In order to break out of Europe, the big dairy companies in the European Union are also working together. In 2012, Arla, a Danish dairy company, and Milk Link, a British dairy company, and Deutsche Pastori merged with the approval of the European Union. The factory is located near the German border between Belgium and Luxembourg. The company supplies most of its fresh milk to the German market. The export of normal temperature milk is one of the company's advantages, and Chinese exports are important.

As domestic dairy enterprises firmly control the channel, it is also very difficult for foreign dairy enterprises to land in the domestic market. For this reason, more and more foreign dairy enterprises choose to cooperate with local dairy enterprises or establish joint ventures, and try to take advantage of the mature and perfect sales channels of local dairy enterprises to seize the domestic dairy market share.

The rapid growth of demand for dairy products in China has made the global dairy giants look covetously. Last year, Irish Ambassador to China Herbalife said that with the lifting of EU dairy restrictions, China is a key market for Irish dairy companies. Similarly, Dutch dairy enterprises have also taken action. at the end of March, Huishan Dairy announced that a joint venture company with Royal Dutch Fishland to produce and sell infant formula products in China has been approved by the Ministry of Commerce. The two sides each own 50% of the joint venture company, and the two sides will jointly develop the domestic infant milk powder market.

In addition to the European Union, American dairy companies will also increase the development of the Chinese market, which makes the competitive pressure in the Chinese market white-hot. Not long ago, KasperJakobsen, CEO of US milk powder maker Mead Johnson, did not shy away from expectations for the Chinese market in a conversation with Wall Street analysts about the quarterly report. He also mentioned that Mead Johnson's finished milk powder would be shipped directly from the Netherlands to China from April. "the capacity of Mead Johnson's Dutch plant will increase in the next few quarters, which will provide greater support for the company's growth in China in the second half of 2015."

Mead's "ambition" may also come from the abolition of the EU's 30-year-old milk quota system from April 1.

It is understood that when the above products enter the country, Mead Johnson will distribute them through e-commerce, some long-term retail stores and selected mother-and-child stores. "at present, it is still in some weak channels, and the company is also improving its plans to strengthen the delivery of its products." KasperJakobsen said.