Over the past year, China's dairy industry has sent a clear signal: transformation is imperative.
On the demand side, the performance of the two dairy giants has sounded the alarm. Domestic leader Yili experienced its first revenue decline in nearly 20 years in 2024, while Mengniu also saw a double-digit drop.
The core issue lies in the liquid milk business. According to statistics, Yili and Mengniu each saw sales in this category decrease by about 10 billion yuan—a figure nearly equivalent to the annual revenue of a second-tier dairy company.
Meanwhile, the supply side is also under pressure. Since 2023, farms have frequently reported incidents of "dumping milk and culling cows," directly due to raw milk prices falling to a 15-year low, severely impacting farm operations.
Weak demand and oversupply are forcing rapid structural transformation across the entire dairy industry.
"Dumping Milk and Culling Cows"
The root of the drastic changes in the dairy industry begins with the sustained decline in raw milk prices. Over the past 40-plus months, raw milk prices have continued to fall, affecting almost the entire industrial chain, from upstream farms to downstream dairy companies.
Raw milk prices are severely inverted with production costs, forcing many farms to dump milk and cull low-yield cows prematurely. According to data from the Ministry of Agriculture and Rural Affairs' "March 2025 Monthly Report on Supply and Demand of Fresh Agricultural Products," the price of fresh milk has dropped to 3.08 yuan per kilogram, a 15-year low, far below the breakeven point for most farms.
Statistics from Sinolink Securities further confirm this trend: current raw milk prices have not only fallen for 40 consecutive months but have even returned to levels seen around 2011, highlighting the operational pressure on farms.
(Image from Sinolink Securities report, showing the trend of domestic raw milk prices)
As the core raw material in the dairy industry chain, the decline in raw milk prices is triggering a series of chain reactions.
The current price changes essentially stem from supply-demand imbalance.
On one hand, driven by previous high milk prices and policy incentives, domestic raw milk production capacity expanded significantly. Even with current low raw milk prices, national milk production continued to grow in 2023, reaching 41.97 million tons, a year-on-year increase of 6.7%. On the other hand, terminal market demand, especially for liquid milk, has remained weak or even contracted, leading to a situation where supply exceeds demand.
Li Shengli, Vice President of the China Dairy Association, pointed out at an industry seminar in July 2024 that the current surplus of fresh milk far exceeds that of 2023, with profit per kilogram of milk entering negative territory for the first time, and over 80% of the industry suffering losses.
To cope with the surplus, many leading dairy companies have chosen to spray-dry unsold raw milk for storage. According to Li Shengli, from April to May 2024 alone, leading companies sprayed an average of 20,000 tons of milk powder per day, accounting for 25% of their milk collection. By the end of June, corporate milk powder inventory had exceeded 300,000 tons.
This price crisis has had two core impacts:
First, upstream farming has fallen into severe losses.
Persistently low raw milk prices have pushed over 90% of dairy farms into losses by early 2025, forcing them to cull low-yield cows or even exit the market. By the end of 2024, the national dairy cow inventory had decreased by about 4.5% year-on-year.
Similar incidents of "dumping milk and culling cows" occurred as early as 2015, but current raw milk prices are even lower than then, making farm operations more challenging.
For example, Mengniu's subsidiary Modern Dairy saw its profit drop from 185 million yuan in 2023 to a loss of 1.47 billion yuan in 2024, with significant increases in dairy cow asset impairments and sales costs.
Second, dairy companies have seen cost reductions and short-term gross margin improvements.
The decline in raw milk prices has indeed provided some cost relief for dairy companies in the short term, improving gross margins. However, this "raw material dividend" is unstable and exacerbates the imbalance in the industry chain, creating a negative cycle of "upstream losses—capacity elimination—supply imbalance."
The "Golden Era" of China's Dairy Industry Has Ended
For dairy companies, a more direct and urgent challenge comes from the consumer side—weak demand.
S&P Global Ratings pointed out in a research report that the "golden era" of China's dairy industry has ended, and the growth dividend that lasted for decades is receding.
This judgment is corroborated by revenue data: in 2024, almost all leading domestic dairy companies experienced "double declines" in revenue and profit.
As the industry leader, Yili's 2024 revenue was 115.4 billion yuan, down 8.24% year-on-year, marking the first negative revenue growth in nearly 20 years; net profit was 8.45 billion yuan, down 18.94% from 10.4 billion yuan in 2023.
Mengniu's performance was even more concerning: 2024 revenue was 95.4 billion yuan, down 10.09% year-on-year; net profit plummeted to 113 million yuan, a decline of 97.83%. Among these, the high-end infant formula brand Bellamy's underperformed, leading Mengniu to record an impairment of approximately 4 billion yuan in goodwill and intangible assets.
The most notable decline was in the liquid milk segment. Although liquid milk remains the largest single category in dairy, accounting for 44.0% of total dairy consumption, its overall sales are trending downward.
In 2024, Yili's liquid milk sales were 75 billion yuan, down 10.5 billion yuan from 85.5 billion yuan in 2023, a decrease of 12.32%; Mengniu's liquid milk sales fell from 83.2 billion yuan to 73.9 billion yuan, a decrease of 9.3 billion yuan, down 11.2%.
This phenomenon has attracted widespread market attention: Are consumers giving up milk amid "consumption downgrading"?
In fact, this is not the case. The weakness in dairy consumption does not mean a decline in volume, but rather a decline in consumer prices.
Looking at Yili's sales volume, liquid milk sales still grew by 2.1% in 2024, reaching 9.69 million tons. However, against the backdrop of sharply falling raw milk prices, its gross margin only increased by 0.35 percentage points, indicating that the main reason for the sales decline was lower terminal prices, not reduced volume.
This trend is particularly evident in terminal channels. Whether it's Yili's "Jindian" or Mengniu's "Telunsu," both flagship products have seen significant promotions across almost all channels over the past year. According to multiple media reports in 2023 and 2024, both products experienced notable price cuts.
Yili's financial report clearly lists data supporting this trend: in 2024, the liquid milk business saw revenue decrease by 3.521 billion yuan due to changes in sales prices; although costs were reduced by 3.11 billion yuan due to lower raw material prices and product mix adjustments, the decline in revenue was still larger.
In other words, even though lower raw milk prices saved costs for dairy companies, they had to cut prices to cope with market pressure, resulting in "earning less overall."
Consumption Stratification: Low Prices and Upgrades Coexist
The S&P report points out that the main reasons for the downturn in China's dairy industry are the disappearance of the demographic dividend and insufficient overall consumption power due to consumption downgrading.
However, despite slowing population growth, China's per capita dairy consumption remains at a relatively low level globally, and there is still significant potential to increase per capita intake, especially among specific groups such as the elderly and children. This consumption growth could become the main growth space for the industry in the future.
(Image from S&P report, showing China's per capita annual dairy consumption)
When discussing changes on the consumer side, it must be noted that the overall decline in milk prices does not mean consumers are universally "downgrading consumption." In fact, the real trend in the current market is "consumption stratification"—although terminal milk prices have generally declined, high-end dairy products continue to sell strongly.
Particularly noteworthy is that against the backdrop of widespread pressure in the dairy industry in 2024, low-temperature fresh milk (pasteurized milk) became the fastest-growing segment, showing clear structural growth and being seen as a highlight in the industry's "major transformation."
From a category composition perspective, the liquid milk market is still dominated by room-temperature white milk (UHT milk). In 2024, it held an 83% share of the liquid milk market due to its long shelf life and transportation convenience, especially suitable for regions with weaker logistics.
While low-temperature fresh milk currently holds only a 17% market share, its growth momentum is extremely strong.
According to data, the pasteurized milk market reached 39.2 billion yuan in 2023, with a compound annual growth rate (CAGR) of 5.5% in retail sales from 2018 to 2023.
Xi Gang, Chairman of New Hope Dairy, once pointed out that in a saturated dairy market, "alternative choices" and "structural opportunities" are among the few growth directions, and low-temperature fresh milk is one of them.
Specifically, the penetration rate of low-temperature fresh milk has increased from 23% in 2020 to 41% in 2024. In first-tier cities, nearly 60% of households purchase fresh milk more than twice a week.
New Hope Dairy data shows that in 2024, both low-temperature fresh milk and low-temperature yogurt achieved mid-to-high single-digit growth, which is particularly rare against the backdrop of overall market pressure. Yili also achieved counter-trend growth in this segment, with its high-end low-temperature white milk revenue growing over 30% year-on-year, driving the overall low-temperature milk business to expand its market share.
This consumption trend is also confirmed by Nielsen's 2024 Dairy Industry Report. The report points out that Chinese consumers are becoming more cautious and savvy, with increased price comparison and seeking of alternatives, but at the same time, they are also paying for "value" and "health."
The coexistence of downgrading and upgrading has become an important feature of current dairy consumption.
"Freshness" is the most intuitive perception of health and quality for consumers, which is why low-temperature fresh milk has risen rapidly. At the same time, product upgrades centered around "health" are becoming increasingly evident. For example, labels such as "0 additives," "0 sugar," "low fat," and "high calcium" have become new consumer preferences, driving products toward functionalization and specialization.
Nielsen further points out that the "health upgrade" of dairy products can be roughly divided into three directions:
- Additive/Subtractive Health: such as adding vitamins, reducing fat and sugar;
- Compound Health: for example, the "Good Night Milk" launched in 2023, targeting people with sleep issues;
- Natural Health: such as upgrading from organic milk to "natural DHA," "natural calcium," "natural A2 β-casein," etc.
Behind these changes are consumers' more refined needs and dairy companies' efforts to find breakthroughs in segmented markets.
Image from Nielsen report
Three directions of dairy upgrade: additive/subtractive health, compound health, natural health
New Opportunities for Second-Tier Brands?
The popularity of fresh milk and healthy new products is bringing new opportunities for second-tier dairy companies.
The rise of fresh milk not only reflects consumers' preference for "freshness" and "health" but is also opening new market space for second-tier dairy companies. Compared to room-temperature milk, fresh milk imposes higher requirements on farm distance and cold-chain transportation, giving local brands a natural geographical advantage.
Fresh milk has a short-radius characteristic, meaning products are not suitable for long-distance transportation. Therefore, regional dairy companies with local high-quality milk sources and cold-chain capabilities are challenging the traditional market position of national room-temperature milk giants.
For example, Bright Dairy and New Hope Dairy are representative brands that have broken through under this trend:
New Hope Dairy focuses on the "Fresh Strategy," specializing in low-temperature dairy products, especially fresh milk and low-temperature yogurt. Its "24-hour fresh milk" supply chain ensures that from milking at the farm to shelf placement takes no more than one day, effectively preserving nutrients and flavor.
In 2024, New Hope Dairy's low-temperature fresh milk and low-temperature yogurt both achieved mid-to-high single-digit growth, while high-end fresh milk and low-temperature flavored milk achieved double-digit growth. Although annual revenue was 10.665 billion yuan, down 2.93% year-on-year, net profit reached 549 million yuan, up 25.55% year-on-year, demonstrating high-quality growth driven by structural optimization.
Bright Dairy, relying on its own farms and cold-chain system, holds a strong advantage in East China, especially in Shanghai, where its market share exceeds 70%. As a typical regional brand, its "fresh + local" strategy has been widely recognized.
In fact, this trend is not unique to China but is a common path for global dairy development. In Japan, brands like Meiji have long shifted their focus to fermented milk, functional milk, and nutritional formulas for the elderly.
In recent years, Meiji has achieved significant results in functional dairy products, launching several functional lactic acid bacteria yogurts such as LG21, R-1, and PA-3, which have performed well in the market. Additionally, Meiji's MeiBalance nutritional drink has been sold in Japan for over 20 years, designed for the elderly and those with poor appetite to help them maintain a healthy lifestyle.
This trend is prompting second-tier dairy companies to lay out functional segments to address the challenges of stagnant traditional liquid milk growth and meet the new needs of different populations.
For example, Mengniu's "Three Little Cows" brand, centered on functional milk, has launched high-protein, sleep-aid, and other series, quickly gaining favor among young consumers and fitness enthusiasts.
Bright Dairy launched "Youbei 5.0 Ultra-Fresh Milk" in 2025, using nanofiltration concentration and ceramic microfiltration sterilization processes to increase protein content to 5 grams per 100 milliliters, the first product of its kind in the industry.
Other functional dairy products targeting sleep scenarios, such as "Sleep Milk" and "Stress-Relief Sleep Yogurt," have also become new growth points for Bright Dairy.
Overall, China's dairy industry is shifting from "scale expansion" to "value competition." Structural consumption upgrades are driving the industry from "broad and extensive" to "refined and specialized," and this evolution path from "large to refined" is gradually aligning with global dairy trends.