当奶价击穿成本线 伊利为何“高价”锁死优然牧业？

This article focuses on Yili Group’s increased stake in Youran Dairy, China’s largest raw milk supplier, amid a decade-low milk price that has put the domestic dairy industry at the bottom of its cycle. Key takeaways are as follows:

1. Core event overview: In June, Yili acquired additional shares of Youran Dairy via an overseas subsidiary for HK$1.173 billion, raising its total stake to 36.07% and making it Youran’s largest shareholder. The two parties also signed a 3-year long-term raw milk supply agreement worth over 70 billion yuan, stipulating that at least 70% of Youran’s annual production capacity must be supplied to Yili as a priority. Currently, Youran has accumulated more than 2.1 billion yuan in losses over three consecutive years, faces a short-term funding gap of over 14 billion yuan, and carries a 72% asset-liability ratio, leaving it under severe capital pressure.

2. Underlying logic: On one hand, Youran originated as Yili’s internal livestock business division and is Yili’s largest raw milk supplier, making the two closely interdependent. Yili’s move is a defensive measure to avoid gaps in its milk source layout. On the other hand, it is a proactive positioning step to secure a stable supply of high-quality raw milk that meets new national standards for the fast-growing low-temperature fresh milk segment.

This article shares key insights for dairy brand operators amid new industry trends:

1. Changing consumer trends: Overall demand for ambient-temperature milk is declining, while low-temperature fresh milk has become the new growth driver. In Q1 this year, domestic low-temperature milk sales rose 30.7% year-on-year. Industry institutions forecast the market will maintain a 10.7% compound annual growth rate from 2024 to 2029. A new national standard for sterilized milk, effective in 2025, requires raw milk as the only allowed ingredient, raising the bar extremely high for milk source quality and supply stability.

2. Supply chain layout recommendations: During the trough of the dairy price cycle, brands can bind high-quality upstream milk sources through a combination of equity holding and long-term supply agreements. This structure converts the variable cost of raw milk into a fixed cost, builds a competitive moat for price wars, and secures position in the high-growth segment in advance. This light-asset holding model does not require consolidating the upstream company’s high liabilities on the balance sheet while still locking in high-quality production capacity, delivering higher cost-effectiveness than building own ranches.

3. New competitive landscape: The core of competition among dairy companies has shifted from brand marketing to upstream milk source supply chain competition. Leading dairy players have already completed their upstream layout, so small and medium-sized brands need to plan a milk source strategy tailored to their own scale in advance.

This article summarizes industry changes, opportunities, risks, and strategic directions for dairy sellers:

1. Demand shifts and growth opportunities: The industry is seeing clear demand divergence. Overall demand for ambient-temperature milk continues to decline, while low-temperature fresh milk is a definite growing market. Yili’s low-temperature plain milk segment already posts over 20% year-on-year revenue growth, and the overall market size is expected to nearly double in five years, making it a worthwhile growth segment for布局.

2. Industry status and risk warnings: Domestic milk prices are currently at a 10-year low, with supply-demand imbalance across the industry. Over 60% of small and medium-sized ranches and individual dairy farmers are operating at a loss, and more than 20% have exited the industry, leading to continued elimination of inefficient capacity. Leading dairy companies have already completed consolidation of high-quality upstream milk sources, putting significantly higher cost and quality competition pressure on small and medium-sized sellers.

3. Recommended strategies: After the new national standard raised requirements for raw milk, sellers can bind with large-scale leading ranches to secure stable supply and avoid non-compliance risks on milk source quality. At the same time, they can pursue differentiated布局 in the mid-to-high-end low-temperature milk segment to avoid the cutthroat price competition in the ambient-temperature milk market.

This article summarizes key takeaways for upstream dairy ranches and dairy processing factories:

1. Shifts in production-side demand: Driven by downstream consumption upgrading and the implementation of the new national standard, market requirements for milk source quality have increased significantly. Low-temperature milk requires direct processing with raw milk, which sets higher standards for bacterial count, protein content and supply stability. Traditional small-scale individual farming and small and medium-sized ranches can no longer meet these requirements and are steadily exiting the market.

2. Business opportunities: Large-scale modern ranches have become a scarce resource. Leading downstream dairy companies have strong demand for high-quality milk sources and are willing to secure supply via long-term agreements plus equity binding. Stable orders from leading brands can help ranches survive the cycle trough and reduce operational volatility.

3. Development insights: Upstream producers should avoid blind expansion that pushes up liabilities. They should prioritize modern, standardized management to match downstream demand for high-quality milk sources, actively partner with leading brands to secure stable orders, and explore digital management to improve milk quality and control production costs.

This article summarizes industry trends, customer pain points and market opportunities for dairy-related service providers:

1. Industry development trends: China’s dairy industry is undergoing cyclical adjustment, with upstream capacity being eliminated and concentration accelerating. The industry’s competitive focus has shifted from downstream brand marketing to upstream supply chain quality and stability, leading to sharply rising demand for modern industry services across the supply chain.

2. Core customer pain points: After expanding capacity, most large-scale upstream ranches face high leverage and large funding gaps. Small and medium-sized ranches lack modern management and quality control capabilities to meet downstream requirements. Downstream brand operators face milk price volatility risk, struggle to lock in stable high-quality milk sources long-term, and face great difficulties in cost control.

3. Solutions and market opportunities: Service providers can develop low-cost financing, digital management, and milk quality control services for upstream ranches, and launch long-term milk source matching and cyclical cost management solutions for downstream brands, to capture new demand generated during industry consolidation.

This article summarizes key insights for dairy trading platforms, fresh food e-commerce platforms and other relevant platform operators:

1. New industry demand for platforms: Both upstream and downstream players in the dairy industry have strong demand for stable matching of high-quality milk sources. Upstream ranches need long-term stable orders to offset cyclical volatility, while downstream brands need stable high-quality milk sources to control costs. Traditional fragmented matching models can no longer meet both parties’ demand for certainty.

2. Adjustments for platform operations: On the merchant acquisition side, platforms can prioritize onboarding large-scale modern ranches and mid-to-high-end low-temperature milk brands to capture the industry dividend of fast-growing low-temperature milk. On the operations side, they can launch long-term supply-demand matching services to help upstream and downstream parties sign long-term framework agreements, improving platform user stickiness.

3. Risk mitigation: The industry is currently in a cyclical trough with high volatility. When partnering with market participants, platforms should focus on verifying upstream ranches’ leverage levels and capital conditions to screen for operational risks. They also need to pay attention to the supply chain stability of dairy brands to avoid cyclical industry volatility spilling over to the platform and disrupting its operations.

This article summarizes new industry trends, business models and research directions for dairy industry researchers:

1. New industry dynamics: China’s dairy industry has entered a new competitive phase, with competition focus officially shifting from downstream brand marketing and channel expansion to upstream milk source supply chain布局. Leading dairy companies have completed the first round of upstream consolidation: Yili has bound Youran Dairy to its ecosystem, while Mengniu has consolidated Modern Farming and China Shengmu. The two leading groups now hold similar milk source scales, bringing permanent change to the industry landscape.

2. Innovative business model: Yili has developed a new industry chain binding model of light-asset holding plus long-term supply agreements. Compared with building self-operated ranches, this model requires lower capital expenditure; compared with ordinary supply orders, it delivers stronger binding force. It also does not require consolidating the upstream company’s high liabilities on the balance sheet while still locking in upstream production capacity, quality and technology, making it a new experiment in vertical industrial chain integration.

3. Open research questions: This deep binding deal is a special choice made at the bottom of the dairy price cycle. Future topics worthy of in-depth research include: the risk transmission path if milk prices remain depressed long-term, the earnings elasticity after the cycle reverses, and whether the bound upstream company can achieve turnaround and create shared value, among other new industry issues.