'Growing Chinese milk lake does have limits'

The Chinese dairy market is a topic of discussion. The rise in international milk and dairy prices can to a certain extent be explained by the high demand from China. The country has always been dependent on dairy imports, but is also trying to develop its own dairy sector. Last year the milk puddle grew about 3%.

Henk Bles runs a company with various parts related to dairy production. Advising dairy farms abroad is one of the disciplines. Bles was active for Fonterra in China for a while, setting up dairy farms with a total size of at least 30.000 to 45.000 dairy cattle. Bles outlines the developments in the Chinese dairy sector as they have taken place over the last 10 to 20 years.

Bles Dairies
Bles Dairies originated from a trading branch in livestock and genetics. Exporting breeding cattle abroad was one thing, but using them in third countries was another. Management sometimes left something to be desired. The company then started an additional service, where knowledge in managing dairy farms was shared with customers.

A few years ago, an order from Fonterra was won. The New Zealand dairy cooperative has been exporting a large volume to China for many years. However, the Chinese government increasingly expects something in return from companies that export to China, says Bles: "If you do business with the country as a company, it is increasingly demanded that you also invest and develop in the country itself."

Partly for this reason, Fonterra planned the investment of a milk processing factory, which had to be supplied with good, safe milk from its own dairy farms. The quality of milk in China was already a problem. The supply often came from old state-owned companies run by local communities. Bles: "Fonterra approached our company to support the further development of the planned dairy farms. We were involved in the entire process: from contacts with the government during the development of the companies to the implementation of a quality assurance system. The dairy farms , affiliated with Fonterra, were therefore able to supply high-quality and safe milk." The model of a large dairy company that wants to create its own milk pool is illustrative of the development of the sector in the country.

What is the common thread in the development of the Chinese dairy sector?
Bles: "Over the past 15 years, the large Chinese dairy companies in particular have started setting up their own dairy farms in order to supply the factories with a) sufficient milk and b) good quality milk. The existing Chinese dairy farms (old state-owned companies) have long had a had a questionable reputation in terms of food safety. The low point was of course the melamine scandal, which emerged in 2008 and which seriously damaged consumer confidence in its own products. The large Chinese processors are therefore increasingly placing more value on well-managed and controlled companies This makes it easier to guarantee food safety. In addition to this development by Chinese parties, the country is also asking foreign dairy companies to invest in Chinese dairy farming and not just export to the country."

What challenges do companies in China face when setting up a dairy location? Are there requirements regarding, for example, manure or ammonia emissions?
Bles: "The main point when applying is the availability of land at the company. The Chinese government requires that you can sell your own manure production on your own land or that you process the liquid manure. The solid fraction of processed manure can easily be placed here. in horticulture, for example. The thin fraction is purified at company level, so that it can be discharged as water. In addition to the space for placing manure, soil is also important for the roughage supply. The majority of the ration consists of corn that has been grown in-house. In addition corn, they also add grass or alfalfa to the ration. All land in China is owned by the state. So you have to discuss long-term lease structures with local governments (which have control over the land). Furthermore, it is in the start-up phase of It is important to have personal conversations with local administrators. Only then will you get things done and arranged."

And what about the requirements regarding animal welfare?
Bles: "It is not actually the case that much is legally regulated for this. However, the companies and investors behind the companies know that ensuring animal welfare is important. A cow that is healthy and comfortable produces more milk. of course, the returns benefit. It is also important for the reputation of the large dairy processors that things are in order in terms of animal welfare. However, most companies here are set up for 'zero grazing'. The cows are therefore kept in stables. Companies are often constructed according to the North American model. There are an x ​​number of stables on the farm and the cows are milked in a central milking parlor. Often 3 times a day in one or more large milking carousels."

How is breeding organised?
Bles: "The large, aforementioned companies opt for quality and import semen from other countries. About two-thirds of Chinese cows are fertilized with semen from abroad. There are a few players active in the country itself. These mainly supply semen to the old state-owned enterprises, many of which are still operational. The cows are then simply inseminated by our own staff, which produces good results.'

You say, through your own staff, is there sufficient labor available for development?
Bles: "I have been positively surprised by the mentality, discipline and eagerness to learn of the Chinese employees. We deliberately started at Fonterra companies with people who had no experience on dairy farms. In practice, it appears to be more difficult to apply existing knowledge. than to have someone absorb completely new knowledge. There is more than enough labor available, provided you take good care of the people. The employees often stay at the company during the week and go home (in turns) at the weekend. The companies provide for good housing for the staff and they are also paid well. The person ultimately responsible at the company often has Western roots. It appears that Chinese employees are on average quite docile, but also somewhat phlegmatic. A manager with Western roots can often provide better guidance and determine direction

The technical results are at a respectable level?
Bles: 'Here there is a distinction between the newly established companies (say, 0 - 20 years old) affiliated with the processing industry, and the traditional companies that have existed since time immemorial. The well-managed large companies can technically keep up with companies here in the Netherlands and achieve a production of between 30 liters and 35 liters per day. A year-round production of between 9.500 and 11.000 liters per cow. The old state-owned companies clearly lag behind and reach an average of 20 liters per day, about 6.500 liters annually. The fat contents are also somewhat lower than in the Netherlands at around 3,8% and protein at around 3,4%.'

What about the total revenue/costs in China?
Bles: "The yields for milk depend on supply and demand on the Chinese market, but also on the level of international dairy prices. Overall, we can say that the price for milk is about 30% higher than here. This advantage is offset by the higher costs. For the protein component in the feed, China is highly dependent on the import of soy, for example. The country is the world's number 1 importer of protein-rich animal feed. This results in relatively high feed costs. the return per liter of milk is probably not much different than here. The return in China is also mainly made further down the chain."

What are the biggest bottlenecks for the development of Chinese dairy farming?
Bles: "That is with certainty the available amount of good soil. At least two-thirds of the country is not suitable for agriculture anyway. These areas have poor soils, are inhospitable, have a climate that is too cold, are polluted or too densely populated. For a good The following three factors are of great importance to the functioning of the dairy farm: the soil must be clean and suitable for corn, there must be sufficient drinking water available in the area and the environment must lend itself to good biosecurity. If you consider these determining factors for If the suitability of a location is taken into account, there is not much left. The width of the land therefore says nothing about the potential size of the milk lake."

Will the Chinese dairy sector be able to develop in such a way that it can meet its own demand for dairy?
Bles: "There is still some room for development and especially room for improvement, especially in the old state-owned enterprises. However, due to the limited number of suitable locations, I think that China cannot meet its entire own demand for dairy products. Together with a growing demand for dairy products, China remains play an important role in the international dairy market."