A Dutch dairy company's booth at an international exhibition in Beijing. China imported 1.52 million tons of dairy products from January to November 2013,up 35.7 percent. WU CHANGQING/CHINA DAILY

Industry hit by reliance on overseas and inadequate domestic supply

China's imported dairy products will exceed 20 percent growth in 2014 as continued urbanization pushes up demand and a lack of large dairy farms limits supply, a bank report said on Tuesday.

The number of domestic manufacturers will increase to make up 30 percent of the country's raw milk supply in 2016, a rise from less than 20 percent this year, according to a study by Rabobank Nederland.

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The current demand-supply gap will gradually be filled by the robust development of bigger dairy pastures, as well as a government-orchestrated industry consolidation that resolved to avoid food safety lapses.

The number of dairy farms in China dropped by 15 percent to 2.2 million from 2008 to 2011, the research found. The proportion of backyard mom-and-pop milking stations was slashed from 70 percent of all farms to fewer than 50 percent in 2013.

The efforts to limit smaller dairy farms stemmed in part from the 2008 melamine scandal that killed at least six babies and sickened thousands more.

The industry is being directed to build larger, vertically integrated farms that house on average herds of 100 cows or more. According to the Dutch bank, these bigger farms boast on average 1.35 times (and up to 1.7 times) the productivity of smaller ones and ensure better quality produce.

"Milk production in China is struggling to grow as a result of small-scale farmers exiting the industry and large-scale farms still under development," said Chen Wei, director of Food and Agribusiness Research at Rabo-bank Nederland in Shanghai. "It is likely to be at least two to three years before the pace of large-scale dairy farm expansion in China outweighs the current contraction in 'backyard' sources and leads to a reduction in import growth."

Building premium dairy houses requires a substantial amount of time and financial input. For instance, the rough cost of a 6,000-head pasture may be as much as 150 million yuan ($24.4 million), leaving aside the additional expenditure in milking facilities and environmental protection measures.

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