Guangzhou China Apr.12, 2011 - On April 2, 2011, the General Administration of Quality Supervision Inspection and Quarantine (AQSIQ) revealed that 643 dairy processors (including 114 infant formula processors) had obtained their re-issued production licenses by March 2011, compared with the total of 1,176, suggesting that there are about 54.67% (=643/1176) of China's dairies had gotten the approval.
However, as we know, there are over 2,000 dairy processors in China. Therefore, perhaps more than 824 dairy processors didn't send their application to government. According to the government's announcement, these processors can't produce dairy products once again. However, the supervision is difficult for the government, as these processors are small processors, and they may produce dairy products illegally in the future.
The closure rate of dairy processors (45.3%) is higher than the expected rate of 20%-25%. They may collectively have made up 20%-25% of the UHT milk market, as this was their main focus. However, given the estimated 50-60% excess capacity the rationalization this brings about will be limited.
Concentration in this industry will be raised. Major dairy producers will benefit from this situation, and some have expanded their capacity ahead of the time, such as Yili. However, the processors who have failed to get their dairy production licenses can still produce milk beverage in the future, and many have revealed plans to do so, which will exert pressure on the large processors like Mengniu, Yili and Wahaha to some extent. It is clear that the end of the road for many small and medium scale dairy processors. On the other hand, the government will need to be vigilant to ensure that some do not attempt to continue on an illegal basis. All in all, the changes must surely point to rising dairy product prices in the future.
Source: CCM International