Chinese dairy industry
China is the world’s second-largest dairy market, after the US, and the first one as importer of dairy products. Milk production...

The United States is the largest producer of cow milk worldwide, followed by India and China. China is the world’s second-largest dairy market, after the US, and the first one as importer of dairy products.
The Chinese dairy industry has experienced a huge shift in the last decades to scale growth and quality upgrading: farm modernization is focusing on standardization, mechanization of milking and feeding, genetic improvement, as well as improvement of infrastructures and distribution channels.
Currently, production of cow milk is near 40 million tons which meets around 75% of domestic needs. Raw milk production is growing yearly. Despite its tremendous growth on production and consumption, per capita consumption remains low.
Average per capita consumption of dairy products in China is of 13 kg, less than one-third of the global average, showing there is a huge potential growth and market. Milk and yogurt are the two most consumed dairies, while cheese market is still small but keeps increasing its size.
One of the factors hindering the development of China’s dairy market is that milk and its derivates are not common ingredients in the Chinese traditional cuisine. Nevertheless, the rise in disposable incomes, the increased exposure to international trends, as well as the growing health awareness, are resulting in a shift in lifestyle.
Furthermore, Chinese government is an important driver of dairy consumption by promoting domestic production and curb dairy imports. Its subsidies have promoted the creation of new dairy farm projects, usually of big size, aiming to increase dairy herd by 2.5 million (which is the half of current stock).
Milk prices are high, as well as producing costs, compared to other countries. Current issues faced by this industry include feed costs and water and land supply, which makes the country a costly place to produce milk.

Production and supply of dairy products
Fresh milk was becoming popular in the past decade as cold chain distribution capacity growth and consumers viewed it more nutritious. Since 2020, due to movement restrictions and difficulties of fresh milk supply, pre-packaged UHT milk is growing in sales to ensure availability of shelf-stable products. For the same purpose, production of whole milk powder production from raw milk has risen, in order to limit losses of dairy processors and to cover the demand from the bakery sector and manufacturers of dietary supplement beverages.
However, import of dairy products and ingredients continue to rise driven by consumer demand and the food processing industry. The biggest foreign suppliers of fluid milk to China are the European Union, especially Germany, and New Zealand.
Domestically produced cheese is processed cheese that uses imported cheese as ingredient. Dairy processors consider that, with current raw milk costs, the cost for natural cheese production is too high, and the production of processed cheese is less complex. Thus, China’s cheese market relies heavily on imports.
Same occurs with butter and skim milk powder (SMP): China has a low butter and SMP production because of raw milk costs, making imported products cost competitive. New Zealand is the top exporter to China of cheese, butter and SMP. The slight growth on butter production in the past two years has been linked to meet production demand of local bakery and food service sectors in a situation of logistics and imports disruption.
Features of local dairy industry
Nowadays, large-scale dairy farms (+100 cows) may represent a 70% of total dairy farms. Holstein cattle account for around half of the dairy herd in large-scale operations. Crossbreeding of foreign Holstein breed with local cattle led to the establishment of Chinese Holstein breed, also known as “Chinese Black and White Cattle” to adapt to local rough conditions.
Inner Mongolia is producing around 6 million tons of milk annually, being the largest producing province in China. Inner Mongolia, Heilongjiang, Hebei, Shandong, Xinjiang and Henan are 6 provinces in northern China which produce nearly 66% of the total national fresh milk.
Ningxia province is also being promoted as a dominant dairy production area in China.
Xinjiang records one of the highest per capita consumptions compared to other provinces, because of their milk tea culture. Big cities, including Beijing, Tianjin, Shanghai and Hong Kong have also a remarkable per capita consumption due to their globalized economies.
In the past, northeastern provinces had small dairy farms whose milk was transported to Russian cities near the border and was used there to make butter and cheese. Nowadays, the dairy industry is the most representative and competitive pillar industry in Inner Mongolia and this province is considered the nation’s leader in terms of development of the dairy industry.
Inner Mongolia is located in the so called “Golden Milk Source Belt”, an area offering temperate climate all year-round, between 40 and 50 latitudes, which offers good conditions for the growth of forage grass. Hohhot, HulunBuir, Baotou and Ulanchabu are the main producing districts in Inner Mongolia.
The province is making efforts to build forage grass and seed source bases to support the industrial cluster and enhance competitivity and has established the first third-party inspection and testing center in China for fresh milk quality and safety.
This region accounts to be the headquarter of the two nation’s leading dairy brands, Yili and Mengniu, which are a reference for national production and sustainability. Both are working to become carbon neutral by 2050 by integrating planting and feeding, and reuse of manure as bedding and fertilizer.
There are few dairy product firms which are self-sufficient in raw milk production, and they rely on contracted and retail dairy farmers. Grazing and pen-stabling are the most common housing systems for small dairies while tie-stall and free-stall are popular for large ones.