China has not been considered a major dairy producing country, but now 2 of the 10 biggest dairy companies in the world are Chinese, according to Rabobank’s annual Global Dairy Top 20 list.
These 2 companies are Yili, which is number 5 on the list, and Mengniu Dairy, which comes in at number 8. In this article we look at the interesting story behind the success of these 2 companies that have mainly been focusing on the Chinese market, but with the constant growing of dairy consumption in China those companies have grown rapidly and are now also investing outside China.
Yili was established back in 1956 in Inner Mongolia when 7 dairy farmers started to work together as what was called a cattle-raising cooperation group. This cooperation was a success and by 1958 the cooperation had already grown to 95 dairy farmers. At this time, the cooperation was called the ‘Hohhot Huimin District’ and at this point the dairy farmers combined owned 1,160 animals. It is worth noting that during this time in China, the daily yield of dairy cows was extremely low, only a few kg per cow per day, and the total daily milk production from all those farms was therefore quite small, only 700 kg. 3 years later, in 1961, the cooperation was renamed to ‘Public-Private Husband Breeding Farm of Huimin District, Hohhot’ and later that year a production of cold drinks began.
An example of Yili products that are available. Photo: Yili
In 1969, a major milestone for the cooperation was reached when the average yield per cow per day at the farms providing milk to the company reached double digits. At the same time, the company renewed the processing technology and expanded its daily processing capacity to 80 tonnes per day. This transformation was the foundation for further development of the company, which by that time was capable of producing a series of cold dairy beverages, which this led to rapid expansion in the decades that followed.
1993 saw another milestone when the cooperation was changed into a shareholding company and the name formally changed to Inner Mongolia Yili Industrial Co., Ltd., later better known as Yili. When this change was made, the company grew even faster than before and was better able to finance the growth. 3 years later, on 12 March 1996, the company was listed on the Shanghai Stock Exchange, becoming the first A-share listed company in the national dairy industry of China. The state did however retain controlling shares. After that, Yili continued to grow and in 2005 yet another milestone was reached when the main business income exceeded 10 billion yuan and with the first appearance on Rabobank’s Top 20 list in 2009 as number 17 with a yearly turnover of 2,7 billion Euros.
During the last decade, Yili has continued to grow at a fast pace, and in 2013, the company started to invest outside of China, starting in New Zealand where the focus was on local production with export to China in sight. Today, Yili fully owns Westland Dairy, the second largest dairy company in New Zealand, among other investments around the world. As said earlier, Yili is now considered to be the 5th largest dairy company in the world based on turnover, with an astonishing €11,6 billion turnover in 2020 according to Rabobank’s list. More than quadruple in turnover in just over a decade!
A look through time: Transformation of China’s dairy sector
In 1949, there were only 120,000 dairy cattle in China, with an annual milk production of 192,000 tonnes, an average yield of just above 3 tonnes per cow. At that time the per capita consumption of dairy products in the country was 0,4 kilogrammes. 60 years later, in 2019, the total number of dairy cattle in China was around 6 million. Find out more...
Mengniu Dairy has an even more interesting history than Yili because it is a younger company. It was founded back in 1999 by a gentleman named Niu Gensheng, a former employee of Yili that spotted a gap in the Chinese dairy market for new production. He named the company Mengniu, a combination of 2 Chinese words where ‘Meng’ refers to the origin of the company in Inner Mongolia and ‘niu’ means cattle. Gensheng started his journey in the city of Hohhot in Inner Mongolia in a small 53m2 rented area but Mengniu was nearly an instant success with its production of ice-cream. It wasn’t too long before the company also produced other products with focus on long-life products.
Where it all began - the location where Mengniu started in back in 1999. Photo: Mengnui
Only 3 years later, in 2002, Morgan Stanley, CDH Investments and China Capital Partners signed an agreement with Mengniu to invest US$26m for a total share of 32% in the company and already one year later, in 2003, yet another milestone was reached. Then Mengniu’s liquid milk sales ranked first in China, giving the right foundation for listing on the market that was done at the Hong Kong Stock Exchange in June of 2004.
In 2005 Mengniu’s sales really took off, aided by clever marketing as the company was betting on a new TV program called ‘Super Girl Voice’. This was a new entertainment program in China that took the country by storm with singing performers. Especially young people liked this program and suddenly Mengniu, as the main sponsor and quite a visible part of the show, became a household name in China. As a follow up on this marketing stunt, Mengniu came up with a new brand and launched Deluxe, a brand that was specially designed for high-end buyers with an expensive design and packaging and priced accordingly. The targeted buyers directly lifted Mengniu even higher.
Today this is one of many production sites Mengniu has now only 20+ years later. Photo: Mengnui
In 2009 the state-owned COFCO Group, China's largest importer and exporter of food, acquired 20% of the shares, making the state-owned company the largest shareholder of Mengniu and the state today still has controlling shares in Mengniu. This new investment gave Mengniu a foundation for even further growth.
Mengniu reached another milestone, in its short history, in 2012 when a strategic cooperation was made with Arla Foods - it also invested in the company, becoming Mengniu's second largest strategic shareholder at the time. At the same time, the Chinese and Danish ministries of agriculture took the lead in establishing the ‘China-Denmark Milk Technology Cooperation Center’ that was to specially focus on improvement of the Chinese dairy industry.
In the following years Mengniu continued to expand its production and turnover and with an increased need for infant formula milk in China, Mengniu in 2013, bought the company Yashili for HK$11.3 billion. Then one year later the French dairy company Danone started its strategic cooperation with Mengniu, and became the second largest shareholder of Mengniu.
Despite it being a young company, Mengniu is now also investing outside of China and started with a local production in Indonesia in 2018 and by acquiring the Australian company Bellamy Organic in 2018 - organic infant formula company.
Today Mengniu produces a variety of products. Photo: Mengnui
In addition to the new approach in marketing the company has taken like above mentioned ‘Super Girl Voice’, the company also made history in 2018 within the dairy industry when it was the first dairy company in the world to become a main sponsor of one of the biggest international sporting events; the Fifa World Cup in Russia.
According to Rabobank’s Global Diary Top 20 list Mengniu was the 8th biggest in the world in 2020 with a turnover of €10,3 billion, admirable growth from 1999.
These 2 companies, both of which are today partly owned by the state of China, compete heavily in China. Not only on the consumer market but also for raw milk from dairy farms. To give stability to the milk intake both companies have now controlling shares in many specialised dairy farming companies. Those dairy farming companies each have several big scale farms with thousands and up to tens of thousands of cows at each farm.
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