Dairy Sector in China: a challenging and dynamic market. The Alimenta case.

Abstract

The dairy sector is one of the most challenging, fast-developing and promising of the entire Chinese economy. It went through decades of changes, worsening and improvements, attracting the attention and investments of countless foreign companies that noticed and believed in the hidden business opportunities behind it. This thesis is divided in three chapters, the first one regards the Chinese dairy sector in general, with a brief description of its history and its evolution during the years. Although authorities have tried to adapt their policies and improve their measures to reach better safety standards and narrowing the distance with international standards, during the past years several safety problems emerged, making clear that the government was unable to guarantee products’ safety. Chinese consumers were not used to consume dairy products on a regular basis, and change this habit was the first real challenge that companies had to face, together with the improvement of infrastructures and transportation. The Chinese government created several programs to boost the dairy sector and to guarantee diet improvements for children, such as the “Milk School Program”, which also helped in rising awareness on the benefits people could derive from consuming dairy products on a regular basis. It is important to consider that not all dairy products are appreciated and consumed in China, powdered milk and fluid milk, particularly UHT, are the most popular, together with drinkable yogurt. The second chapter is mostly dedicated to the issues that arose from the “Melamine scandal” in 2008, how the government tried to regulate the sector through policies and stricter measures, and what are the noticeable consequences of them. The Chinese dairy industry is in constant change, authorities are trying to find the best measures that may push the domestic production and consumption, to consequently lead the sector to a new era, in which Chinese products may re-gain domestic consumers’ faith in them, lost years ago because of safety and hygiene issues. The aim of Beijing is to reinforce the domestic players at the expenses of foreign ones, this is the reason why, from the 1st of January 2018, the strictest measures on infant formula in the Chinese history would be implemented. Authorities have reduced the number of brands each company can trade in China, they require R&D documents and reports on products, and manufacturers must strictly adhere to the rules if they want to obtain the permission to market their infant formula in China. The last chapter is dedicated to the case study, a company from Sardinia, Alimenta srl that derives 95% of its profits from exports to China. Its core products are sheep and goat powdered milk and whey, considered as niche products as they are less common than cow products, and they are believed to be richer in nutrients. I had the opportunity to interview Alimenta general manager, Mr. Colombo, our chat was the opportunity to understand that even after the implementation of tight and strict rules for infant formula, the Chinese dairy market would still attract investments and players, and would still be considered a great business opportunity. The last paragraph is dedicated to another Sardinian company that is the only one that furnishes milk to all Macau schools, and as Alimenta, derives most of its profits from exports to China. Many forecast have been made, but being so dynamic and fast-changing, it is difficult to precisely predict the future trends of the Chinese dairy market, beside this, it is largely believed that the sector would still develop and grow.