September 1, 2008

Mengniu Milk Production Tour 中国- -牛!

Update: check out Milk Dreams, my corporate profile of Mengniu in China International Business (also includes a section on the Melamine Nightmare)

China's per capita milk consumption is one of the lowest in the world but is increasing at 10% per year. Despite its low per capita consumption (total consumption is unsurprisingly huge), China is the fifth largest dairy producer in the world, helping to supply a relatively stable global demand. One of the dairy giants meeting the surge in local demand is Mengniu. Beijing Gourmand had the opportunity to visit Mengniu's model farm just outside of Hohhot, billed as the United Nations of dairy farms, although farm hardly seems like the right term for this high tech and innovative showcase.
The nearly 600 hectare farm has capacity for 10,000 cows, all selectively bred in vitro for high milk producing genetics. Surrounding fields provide cattle with forage from 12 different countries, giving them a balanced diet. The considerable amount of animal waste is handled in an ecologically friendly manner, with most of it used to fertilize the fields or to generate power for the facility. The dairy production and packaging facilities integrate cutting-edge automation technology, much of it from technology transfer from Mengniu's Australian partners, Austasia (actually part of Japfa, a large Indonesian agribusiness conglomerate).

Mengniu was established in 1999 by Niu Gusheng, former employee of rival Yili Dairy. At only 9 years old and already with 30,000 employees and 2B USD in annual revenues, Mengniu has grown through building its distribution channels, clever marketing (it's the official milk of China's space program and a major NBA partner in China), great management, and efficient operations. Mengniu currently has the largest market share in the dairy sector, with 16% to Yili's 15%; the next nearest competitor is Sanlu with only 8%.

The following video shows the beginning and end of the milk production process. Notice how few people are required for production. Mengniu even has a prototype milking machine that allows cows to freely walk in to the device when they wish to be relieved of their heavy burden. Infrared sensors detect the cow's presence and a robotic arm attaches suction cups to the udder. Imagine, some day the facility could be nothing but cows and robots.

These pictures capture some of what the video doesn't show

Beijing Gourmand was told that no, he could not try the happy-eating grass

If you're going to be in Hohhot, find out more information on taking the tour.


The Milk and Dairy Market in China
: This 2008 KPMG report is well researched and gives a great snapshot of opportunities for foreign companies in China's dairy market. Key findings pulled straight from the report are: 1. China's dairy market is large and growing but its fragmented nature presents unique challenges; 2. For some categories (e.g. milk powder) China is still import dependent, providing a potential opening for foreign players; 3. Government policy is supportive of the dairy sector (Wen Jiaobao has stated that it's his dream for every Chinese child to have a 1/2 liter of milk per day). Barriers are also relatively low for foreign companies compared to other sectors; and 4. There are opportunities for foreign players to develop the supply chain.

China's Growing Market for Dairy Products
: This slightly out-dated 2004 report from Iowa's Center for Agriculture and Rural Development gives a concise overview of China's dairy industry. It has some interesting market research but too easily dismisses the cultural factors that influence dairy purchases in China.

China Drinks its Milk: A more balanced, but largely anecdotal, article from the BBC.

Innovation Leads to Mengniu's Success: Interesting China Daily article (no, that is not an oxymoron) focusing on Mengniu's innovation.

Mengniu Creates Growth History
: Brief and interesting outline of the Mengniu success story.

Danone-Mengniu Partnership Not Approved
: It hasn't been all smooth sailing for the dairy giant. The failure to get the joint-venture approved led to a 4% dip in Mengniu shares.


Iago de Otto said...

The dairy industry in China has taken a bit of a hit with this milk powder incident, but I guess 5,000 years of ongoing history will swallow this one up like a healthy baby at its mommy's teat.

Anonymous said...

Does the Mengniu factory show the process of putting Melamine in their products?