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Milk, Cows and Chopsticks

A Value Chain Approach on the Development of the Chinese Dairy Sector

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Giacomo Mencari Academic Year 2007 - 2008

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Outline 1.  Research asset 2.  Focal Point of the Study 3.  Approach and Methodology 4.  Limits of the study 5.  Results 6.  Conclusion and Suggestions

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Outline 1.  Research asset 2.  Focal Point of the Study 3.  Approach and Methodology 4.  Limits of the study 5.  Results 6.  Conclusion and Suggestions

1. Research Asset

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Relevance of Dairy in China •  Chinese people traditionally did

not include dairy in their diet

•  Food habits changed with economical boom, urbanization and westernization of styles of life

•  China is the first largest dairy importing country in the world

•  China rose in the world production rank

•  Dairy sector in China is expected to develop as fast as consumption will increase (FAPRI projections)

•  Dairy development (consumption and production) is considerated a strategic sector from the central governement

2005 Mt 2006 Mt Increment rate

1 India 88 India 91 3,4% 2 USA 80 USA 83 3% 3 Russia 31 China >30 >7,1 % 4 Pakistan 29 Russia >30 - 5 Germany 28 Pakistan >29 - 6 China 28 Germany 28 - 7 France 25 Brazil 25 4,1% 8 Brazil 24 France 24 -4% 9 N. Zealand 15 N. Zealand 15 -

10 Ukraine 14 Ukraine 14 -

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Cow Milk ProductionDairy Consumption (fluid and manufacture)Milk Cow Numbers

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The Dairy Sector in China •  Dairy production is not

distributed homogenous in the territory

•  A multitude of small farms beside few big farms managed on large scale

•  80% of the total amount of the milk produced by small dairy farms in China

•  Landless production systems located in peri-urban areas cover important role in the national production

Milk Deficit > 400 tonnes Milk Deficit < 400 tonnes Milk Surplus Cows in stocks of national total

Source: Rabobank International Report (Lou 2006)

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Outline 1.  Research asset 2.  Focal Point of the Study 3.  Approach and Methodology 4.  Limits of the study 5.  Results 6.  Conclusion and Suggestions

2. Focal Point of the Study

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Research Question What development potentialities exist for small

farmers along the dairy value chain in China?

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Objectives 1.  Description of the dairy value chain in China 2.  Comparison between two different production

areas 3.  Analysis of interrelations between actors

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Outline 1.  Research asset 2.  Focal Point of the Study 3.  Methodology 4.  Limits of the study 5.  Results 6.  Conclusion and Suggestions

3. Approach and Methodology

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What means Value Chain Approach in development studies? Kaplinsky and Morris definition: a Value Chain is the full range of activities necessary to bring a product from its production to its end use, including marketing, processing, distribution and other support functions necessary to bring the product to its end-user. VC is based on a characterization of input-output relationships from producers to retailer, and the coordinating mechanisms that guide activities at each step.

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activities

Assistance for IA

Feeding

Collecting Raw Milk

Buying and selling

Storing Buying and consume

Supply of feeding

Milking Hiring transport

Buying and selling

Sanitary assistance

Cows management

Storage

Extension service

First storage Processing dairy outputs

Consulting First sanitary assistance

Labelling

Negotiate price

Marketing

actors

Facotries of concentrates

farmers Drivers Managers Managers

Farmers Workers Workers Workers

Veterinary Dairy Companies

Universities

Credit Insitutions

Consumption

Retailers

Transport

Production

Inputs

Processing

Mapping Actors and Activities IMRD

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Methodology

1.  Random selection of the stakeholders 2.  Observations on the dairy farms 3.  Semi-structured interviews with farmers,

processing companies managers and other stakeholders

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Research Areas Beijing Province Jiangsu Province

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Outline 1.  Research asset 2.  Focal Point of the Study 3.  Approach and Methodology 4.  Limits of the study 5.  Results 6.  Conclusion and Suggestions

4. Limits of the Study

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Limits of the study

•  Limited number of interviews (10) •  Incomplete stakeholder analysis: only

farmers and processing •  Translation difficulties

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Outline 1.  Research asset 2.  Focal Point of the Study 3.  Approach and Methodology 4.  Limits of the study 5.  Results 6.  Conclusion and Suggestions 5. Results

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Dairy Value Chain in China •  Dairy production is supported and regulated directly by the central

government –  Set up activity support –  Fodder costs subsidies –  Management of AI

•  Dairy production is gaining importance in peri-urban areas driven by demand

–  Inputs need to be imported –  Environmental problems

•  Several forms of farmers cooperation –  Dairy gardens –  Milking Halls

•  Poor management and lack of dairying culture –  Animal feeding –  Hygiene –  Herd management

Production

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Dairy Value Chain in China •  Few big (national) companies control

major part of the market – Very small portion of the dairy products are

sold on informal markets

•  Expectation for further developments are related rather with new consumers than with new manufactured products – New urban immigrants – Young generations

Processing

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Beijing •  Large dairy operations

mostly former state farms nowadays private owned or controlled operations

•  Modern technologies available

•  Manure disposal

Jiangsu Province •  Small dairy operations

family owned

•  Rudimental structures

•  Environmental problems

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Analysis of Interrelations Between Actors

Large Dairy Operations •  Good negotiation power

or even direct integration Smallholders' farms

•  Lack of negotiation power •  Dependence from inputs

and services from the dairy companies

•  Preference to get raw milk from large dairy operation –  Simplification of suppliers –  Better product quality

•  Milk price at farmgate is linked with quality parameters

•  Supply inputs (feed, AI, tech. assistance)

Production

Processing

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Outline 1.  Research asset 2.  Focal Point of the Study 3.  Approach and Methodology 4.  Limits of the study 5.  Results 6.  Conclusion 6. Conclusions and Suggestions

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Conclusions •  Positive trends for dairy sector

–  In certain areas small dairy farmers continue to play an important role

–  In other areas large operations dominate

Suggestions •  Conditions to remain competitive

–  Improve technical knowledge and management –  Decrease the dependence on external markets for the

fodder

•  Improve the competitiveness of small dairy farms –  Develop and expand cooperation systems

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¡Thank you for your attention!