Dairy prices rise without profit for dairy farmers

“The price of milk has risen, milk companies have gained more profit, and our dairy farmers haven’t benefited. The days are getting tougher every year. Dairy farmers have no pricing power and can only be determined by dairy companies. Mr. Yang, the head of a dairy cow breeding center in the suburbs of Beijing, told the reporter of the "First Financial Daily".

Recently, Yili, Guangming, Sanyuan and other dairy brands have issued price notifications. Products including liquid milk, sour milk and so on have gained about 10%.

Beijing Sanyuan Food Co., Ltd. stated that due to the increase in labor costs and logistics costs and the high price of some raw materials, it caused difficulties for the company's business and decided to start product prices on January 1, 2012. Adjustments were made; however, the main reason for Yili was that it was affected by fluctuations in raw material prices.

However, the price increase in the downstream consumer market has not been transmitted to upstream raw milk, and dairy farmers have not benefited from it.

To Mr. Yang, the head of the dairy farming center, it is puzzled that although the price of liquid milk in the retail market has risen several times this year, the price of milk has declined instead. “Last year we had the same quality in this area. The original milk market price was 3.7 to 3.8 yuan/kg in the same period, but this year it dropped to 3.4 to 3.4 yuan/kg, said Mr. Yang.

For Mr. Yang, “One of the means to reduce the purchase price of dairy farmers for dairy farmers is to not openly disclose the pricing system. Now that we have milk delivered to the factory, we have to wait a month and a half before we can receive the money. What level of price is what dairy companies say? It's because they basically monopolized our milk collection stations."

At the same time, dairy farmers are faced with the same problems as rising costs of raw materials. In the cost of dairy cows, feed and labor are the two main items, of which the feed cost has increased from 2,200 yuan/ton last year to 2,700 yuan/ton now, with an increase of more than 30%, and the labor cost has increased by 60%.

According to Mr. Yang’s calculation, the profit of milk production per dairy cow dropped from 1,500 to 2,000 yuan last year to several hundred yuan this year. For example, depreciation expenses such as leasing of land, building of cattle sheds, milking workshops, feed storage processing equipment, etc., together with the loss of the entire dairy cattle breeding industry.

On the one hand, the price of downstream retail markets has risen. On the one hand, prices have been pushed down by upstream farmers, and milk companies have used double measures to squeeze profits. This has made the entire dairy chain increasingly unbalanced.

Li Shengli, a professor at the China Agricultural University (Weibo), stated that the profits on the entire industrial chain are calculated at 100%, then the retail link accounts for about 55%, the processing companies account for about 35%, and the profit sharing for farming links only accounts for 10%.

Uneven distribution of benefits has become the biggest problem in the dairy industry chain. “The dairy farmer cannot sell a good price, so he is not willing to invest in feed and management, and the quality of the raw milk is not guaranteed. Raw milk problems such as aflatoxin due to moldy feed will also be frequent. Confidence in consumers will also decline, and the domestic dairy industry will continue to shrink. As a result, profitability of dairy companies will decrease, prices of upstream dairy farmers will be reduced, dairy farmers will be injured again, and farming enthusiasm will decline. As a result, a vicious cycle of dairy industry will be formed, leading to the entire dairy chain. Injured," said one person in the industry.