The third-largest pasture enterprise, Shengmu, could not escape and suffered unprecedented losses. According to Consumer Daily Exposure, China Shengmu (01432) announced that for 2017, the loss attributable to owners of the parent company was approximately RMB 1 billion, compared with a profit of RMB 680 million in 2016. In 2017, Shengmu founder Yao Tongshan successively resigned as chairman and president. The huge loss in 2017 was an outcome that Yao Tongshan, who aimed to create China's first organic milk, did not foresee. It is important to note that Yao Tongshan had placed great hopes on Shengmu. On the afternoon of March 23, China Shengmu issued a profit warning, expecting a loss of about 1 billion yuan for 2017, a year-on-year decrease in net profit of 247%. This is the first loss since Shengmu's founding eight years ago, and it is a substantial loss. Shengmu provided the following reasons for the loss:

  1. Based on the principle of prudence, combined with the latest board announcements regarding the recoverability of specific accounts receivable and customer creditworthiness, the Group expects to make an impairment provision for accounts receivable of approximately RMB 650 million;
  2. Due to (1) the Group's control of dairy cow numbers in response to weak demand in the raw milk market; and (2) a general decline in raw milk prices, for the year ended December 31, 2017, the Group recorded a significant loss of approximately RMB 600 million from changes in fair value of biological assets less selling costs;
  3. In 2017, facing fierce market competition in dairy products, the Group adjusted its market strategy. The sales volume and selling price of its own branded liquid milk products decreased significantly compared with the previous year, and the average price of raw milk also decreased significantly compared with the previous year. The loss was so huge that it was unexpected to the outside world. Perhaps due to the pressure from poor performance, at the end of 2017, Yao Tongshan, who had strong dairy industry sentiments, resigned as president. On the evening of December 17, 2017, China Shengmu issued an announcement on personnel changes: company founder Yao Tongshan resigned as CEO, and the major shareholder and Shengmu chairman Shao Genhuo concurrently assumed the role of acting CEO. Yao Tongshan continued to serve as an executive director. At the same time, Shengmu's CFO Cui Ruicheng also left the position. On June 29 of the same year, a board change announcement was issued: company founder Yao Tongshan resigned as chairman but would continue as executive director and CEO. The chairman position would be taken by Shengmu's single largest shareholder, Shao Genhuo. In December last year, Yao Tongshan resigned as president of Shengmu, and the CFO also left. The editor of Consumer Daily Exposure felt there might be some issues, perhaps the company was facing performance and financial problems. Now the company has issued a performance warning, with a net loss of 1 billion yuan, which reveals the bleakness of China's large pasture enterprises and concerns about their future. Among China's large pasture enterprises, the largest, Modern Dairy, has suffered consecutive losses, with an expected loss of over 900 million yuan in 2017. The second-largest, Huishan Dairy, is struggling with bankruptcy and restructuring. Now Shengmu Hi-Tech has lost 1 billion yuan, and its former leaders have left, making the future of Shengmu seem uncertain to outsiders. On March 1, 2010, Yao Tongshan officially left Mengniu. From then on, he started his own business, founded Inner Mongolia Shengmu Hi-Tech Animal Husbandry Co., Ltd., and aspired to produce the best milk in China. Within a few years, Shengmu unexpectedly established the world's first desert organic milk industry system in the Ulan Buh Desert, thereby not only creating the world's first desert organic milk brand but also jumping out of the red ocean of fierce competition in China's dairy industry, opening up its own blue ocean, and rapidly rising to become the leading enterprise in China's emerging organic milk industry. Shengmu rose during the rapid development period of China's dairy industry, which was also a period of shortage of good milk. Benefiting from huge demand, Shengmu achieved high-speed growth in the early years. But as the walls of China's dairy industry gradually came down, milk from Australia and Europe flooded in. A hero cannot withstand a pack of wolves. The persistently high raw milk prices and costs in China could hold up for a while during shortages, but when imports flooded in, they lost badly. Modern Dairy bore the brunt, and Shengmu's organic milk, despite holding out for a while, could not withstand the pressure. The free trade agreement with New Zealand removed half of the walls of China's dairy industry, and domestic producers could still resist. The free trade agreement with Australia removed the other half, and the surging ocean of imports overwhelmed the domestic dairy industry, leaving it defenseless. Europe's removal of quota restrictions left China's dairy industry with no means to resist. Pasture enterprises that relied on raw milk were in dire straits. Heroes cannot escape the times. External shocks caused Shengmu's proud organic milk to lose its due dignity; the increasingly competitive domestic market meant that Shengmu's good milk and good products could not fetch good prices. More than half of domestic food and milk powder enterprises use imported bulk milk powder, and over 90% of food enterprises use bulk powder, so good milk cannot sell at good prices. Making their own products, they could only float in first- and second-tier markets, which are the domain of traditional giants and regional powers. Source: Consumer Daily Exposure (ID: expo315) Click Read Original to see more about the 4th FMCG + Internet Conference... -END-