Under the dual pressure of the implementation of the new milk powder policy and the slow merger and reorganization, the infant formula milk powder industry has made significant progress in terms of quality level, product standards, technical equipment, and supervision level, reaching the world-class level. Song Kungang, honorary chairman of the China Dairy Industry Association, said that China's infant formula milk powder industry has entered a new period of stable development.

On July 6, the theme day activity of the Ministry of industry and information technology of the 2017 national food safety publicity week-"Symposium on merger and reorganization of some infant formula milk powder enterprises" was held in Beijing. Compared with previous years, in 2016, the process of merger and reorganization of infant formula milk powder enterprises was particularly difficult. Problems such as "milk powder production cost is too high", "merger and reorganization domestic demand is not strong", "lack of funds" and "lack of high-tech investment" have been repeatedly mentioned by participating enterprises.

However, it is gratifying that under the dual pressure of the implementation of the new milk powder policy and the slow merger and reorganization, the infant formula milk powder industry has made significant progress in terms of quality level, product standards, technical equipment, and supervision level, reaching the world-class level. Song Kungang, honorary chairman of the China Dairy Industry Association, said that China's infant formula milk powder industry has entered a new period of stable development.

Three years of achievements: industry concentration increased significantly, mergers and acquisitions came to an end.
    
In June 2014, the State Council announced the "work Plan for promoting the Merger and reorganization of Infant Formula Milk Powder Enterprises" (hereinafter referred to as the "work Plan"), which requires that by the end of 2015, strive to form about 10 large-scale infant formula milk powder enterprise groups with annual sales revenue exceeding 2 billion yuan, and the industry concentration of the top 10 domestic brand enterprises will reach 65%; by the end of 2018, strive to form 3 to 5 large infant formula milk powder enterprise groups with annual sales revenue of more than 5 billion yuan, and the industry concentration of the top 10 domestic brand enterprises exceeds 80%.
    
With the implementation of the "Work Plan", in recent years, there have been many mergers and acquisitions in the domestic infant formula milk powder industry, such as Mengniu's acquisition of Yashili, Feihe's acquisition of Abeite Dairy, Guanshan Dairy, and Yashili's acquisition of Dumex (China) Wait. In addition to carrying out mergers and reorganizations in China, Yili, Guangming, Shengyuan and other enterprises have established milk source bases or raw material processing plants in New Zealand, France and other countries in the form of investment, acquisition or holding. But after this wave of acquisitions, the pace of acquisitions by domestic companies has slowed. Last year, only Aussie Dairy and Bright Dairy made major moves in mergers and reorganizations. It is worth mentioning that last year Yili proposed to acquire a 37% stake in China Shengmu, which eventually failed.
    
In the three years since the release of the "Work Plan", during the National Food Safety Promotion Week every year, the Ministry of Industry and Information Technology will hold a symposium on the merger and reorganization of infant formula milk powder companies to report the progress of the merger and reorganization. At the 2015 symposium, Wang Liming, chief engineer of the Ministry of Industry and Information Technology, said that since 2014, there have been nearly 20 corporate mergers and acquisitions in my country. By the end of 2014, the industry concentration of the top 10 domestic brand companies reached 54.2. An increase of nearly 10% over the previous year. At the 2016 symposium, Zhang Jun, director of the Food Division of the Consumer Goods Industry Department of the Ministry of Industry and Information Technology, said that the industry concentration of the top 10 domestic brand companies has exceeded 65%. At this year's symposium, Wang Xiaoqing, deputy inspector of the Consumer Goods Industry Department of the Ministry of Industry and Information Technology, said: "As of the end of 2016, the concentration of the top 10 domestic infant formula milk powder companies was close to 70%."
    
Looking at the records of the past three years, it can be seen that the industry concentration of the top 10 domestic brand companies has greatly increased, but the pace of mergers and reorganizations has slowed down. As Fang Anru, deputy director of the Heilongjiang Provincial Industry and Information Technology Commission, said: "After more than three years of mergers and reorganizations, the willingness of enterprises to continue mergers and reorganizations is not very strong, and mergers and reorganizations have come to an end."
    
After the merger: there are pros and cons, the internal structure optimization problem can not be ignored
    
Why did domestic dairy companies slow down the pace of mergers?
    
In 2016, the State Food and Drug Administration promulgated the "Administrative Measures for the Registration of Infant Formula Milk Powder Product Formulas", which requires that "each enterprise shall not exceed 3 series of 9 product formulas" and "the same enterprise applies for registration of product formulas of the same age group. There are obvious differences and confirmed by scientific basis", and a final time point is given: January 1, 2018. This means that by January 1, 2018, if the infant formula milk powder manufacturer has not passed the formula registration, it will have to change business or close down.
    
Under the new milk powder policy, many enterprises are seizing the time to build factories overseas, hoping to obtain more formula registration qualifications before 2018. Wang Wei, vice president of Yili Group, said at the forum that more and more domestic milk powder enterprises are moving to overseas markets in order to meet the market demand, and the domestic demand for merger and reorganization of domestic brands is not strong, which is an important reason for the slowdown in the merger and reorganization of infant formula milk powder enterprises. In addition, many large domestic enterprises have planned their products in advance, and the planned production capacity can meet the development needs of the next 3 to 5 years, which has caused certain obstacles to the merger and reorganization of other enterprises. Li Yichao, general manager of Shaanxi Heshe Dairy, believes: "In the entire industry, the current willingness of large enterprises to merge and reorganize is not strong, mainly because of overcapacity."
    
The optimization of the internal structure after the merger and reorganization of enterprises can not be ignored. At the symposium, Wu Mingyue, manager of Shaanxi Baiyue Group, made a representative speech: "Although Baiyue Group has carried out two mergers and reorganizations, mergers and reorganizations are still a brand new business for us. After several years of practice, we have realized that mergers and reorganizations are indeed conducive to strengthening similar brands, reducing production costs, eliminating vicious competition, and increasing market share. However, if there is no new brand management concept, no high-tech investment, but simple product superposition and group heating, then merger and reorganization will exist in name only, and may even have the consequences of one side dragging down the other." Liu Zhengdong, general manager of R & D of Yashili International Group, said that after merger and reorganization, enterprises need to reorganize the enterprise structure and streamline and optimize the process, but there is still a lack of corresponding financial support and subsidies.
    
Fang Anru said that the Heilongjiang Provincial Department of Industry and Information Technology has put forward specific guidance on the construction of milk source bases, quality management, brand building, and dairy sales model innovation of mergers and reorganizations, but there is no strong means to promote mergers and reorganizations. At present, the impact of the new milk powder policy on improving the concentration of the industry has not been reflected, and the merger and reorganization enterprises also lack deep resource integration.

Government departments: strengthen policy guidance to help enterprises enhance competitiveness

After the release of the "Work Plan", local government departments adhered to the principle of "enterprise-led, government-guided, market operation, and legal regulation" and actively implemented the spirit of the document. At this forum, Wang Xiaoqing put forward six requirements for the next step of merger and reorganization of infant formula milk powder industry: first, attach great importance to merger and reorganization, improve the organization and coordination mechanism, and guide and support enterprise merger and reorganization in an orderly manner in combination with local reality, so as to achieve practical results; second, further optimize the market environment, follow market rules, give full play to the role of market mechanism, and constantly improve policies and measures, strive to create a good environment for corporate mergers and reorganizations; third, innovate work ideas and methods, combine corporate mergers and reorganizations with the resolution of overcapacity, elimination of backwardness, industrial transfer, technological transformation, energy conservation and emission reduction, etc., to find the entry point and work Grasp; fourth, enterprises must take the initiative, make full use of relevant national policies and measures, accelerate the pace of mergers and reorganizations, and promote the transformation and upgrading of enterprises to become better and stronger; the fifth is to ensure the quality and safety of milk powder, strengthen quality management, further improve the inspection (supervision) system and traceability system, and improve the quality and safety level of milk powder; the sixth is to strengthen publicity and exchanges, summarize and promote typical cases of enterprise mergers and reorganizations and good work practices.

"Shaanxi will give full play to the advantages of rich dairy goat resources and good industrial foundation, and support the dairy goat industry to become bigger and stronger." Zhang Xiaoping, deputy director of the Consumer Goods Department of the Shaanxi Provincial Department of Industry and Information Technology, introduced that in accordance with the idea of making bigger milk, stronger goat milk, and steady progress, Shaanxi aims to build a western dairy product processing base and a world-class goat milk product processing base. Arrange 50 million yuan of special funds every year to support the dairy goat industry, and have successfully held two World Dairy Goat Industry Development Conferences to promote the Shaanxi goat milk industry to the world.

Fang Anru said that Heilongjiang Province has high-quality milk sources and a small local market, which is very suitable to become China's infant formula milk powder production base. The government should further support enterprises to carry out the research and development of milk powder formula to help enterprises enhance their international competitiveness.

Future development: the market on the right track, bright prospects  
    
"With the joint efforts of many companies, the infant formula milk powder industry after the merger and reorganization has re-embarked on the path of healthy development." Ministry of Finance Economic Construction Department researcher in Asia said.
    
Song Kungang proved this view with a set of data: in 2016, the qualified rate of infant formula milk powder sampled by the State Food and Drug Administration reached 99.1. Although winter is the off-season for dairy sales, in December 2016, my country's dairy sales still increased by 12% year-on-year; in the first half of 2017, the production and sales of dairy products maintained a 75% growth rate. "These data show that China's dairy market is on the right track, and China's dairy industry is moving towards a period of stable development." Song Kungang said.
    
"China's supervision of infant formula milk powder has reached a very strict level. We should publicize the quality of Chinese milk powder." Fang Anru proposed.
    
In fact, in the infant formula milk powder industry, "Chinese standard" has become the world benchmark. At the meeting, Shi Gensheng, an investigator from the Food Department of the National Health and Family Planning Commission, introduced: "After decades of efforts, especially in recent years, China's food safety standard system has been basically completed, and there are already more than 1200 provisions. Among them, the standard for dairy products was the first to be perfected." Yu Chaogang, general manager of Newberz Group, shared a short story: when he visited Europe, he asked about the standards of the milk powder industry in Europe, and the local Ministry of Agriculture official's answer was very encouraging: "as long as it meets Chinese standards, it can meet our standards, because Chinese standards are stricter than ours."
    
With the improvement of quality control of dairy enterprises, consumer confidence is gradually recovering. Song Kungang said that at present, China's infant milk powder enterprises are at the world-class level in terms of production management, quality control, plant and facilities construction, hardware and software conditions, far exceeding the standards of Europe, Australia and New Zealand. "We need to have full confidence in China's infant formula milk powder. In general, the industry situation this year is relatively optimistic, and we hope that all enterprises will complete the formula registration as soon as possible and improve the production licensing system. 'Going out' enterprises should continue to grasp the market, think calmly and develop steadily."

Related links: List of domestic dairy mergers and acquisitions

In November 2010, Bright Dairy bought a 51% stake in New Wright for NZ $82 million, becoming the first domestic case of acquiring a large overseas dairy company. This is also the first overseas merger of Chinese dairy enterprises.
    
On January 13, 2013, Feihe Dairy announced the full acquisition of Jilin Ebeite Dairy.
    
In May 2013, Xi'an Hongxing Dairy acquired Yangling Shengfei Dairy Co., Ltd.
    
On June 18, 2013, Mengniu issued a takeover offer to Yashili shareholders, involving a maximum amount of more than HK $11 billion, which is the largest merger and acquisition of China's dairy industry.
    
On September 10, 2013, Yili issued an announcement stating that it invested in Huishan Dairy through its wholly-owned subsidiary Yili International Development Co., Ltd. in Hong Kong and became an investor in Huishan Dairy with an investment of US $50 million.
    
On November 21, 2013, Shengyuan announced the merger and reorganization of "Dr. Nursery" milk powder brand.
    
On December 31, 2013, Heshengyuan acquired 100 equity of Changsha Yingco Nutrition Co., Ltd., an affiliated company of Nanshan milk powder, with a total agreement amount of 0.35 billion yuan, in order to obtain the production line and production qualification for infant formula milk powder.
    
On February 9, 2014, Gabili Group invested 0.138 billion yuan to acquire Inner Mongolia Hulunbuir Friendship Dairy Group.
    
On February 19, 2014, Feihe Dairy announced that it had reached a strategic cooperation intention with Guanshan Dairy. Feihe plans to invest 0.3 billion yuan of its own funds to hold Guanshan Dairy.
    
On June 30, 2014, Xi 'an Baiyue Goat Milk Group signed a contract to acquire a 60% stake in Shaanxi Yuris Dairy Co., Ltd.
    
On October 30, 2014, Mengniu International, Yashili and Danone Asia jointly signed a share subscription agreement. Yashili issued 1.186 billion additional shares to Danone for a total amount of HK $4.389 billion. In February 2015, Danone officially became Yashili's second largest shareholder, holding 25%, and Mengniu holds 51% of Yashili.
    
On April 17, 2015, Beinmei acquired 65% equity of Dunhua Meilijian Dairy Co., Ltd. with cash of 0.117 billion yuan.
    
On September 21, 2015, Yashili acquired Mengniu's wholly-owned subsidiary Oushimengniu for 1.05 billion yuan. All of Mengniu's milk powder brands are concentrated on Yashili's platform.
    
On October 28, 2015, Beinmei acquired Fonterra's Australian factory to obtain milk sources, and jointly acquired special formula milk powder production technology with South Korea's second largest dairy company Daily Dairy.
    
On December 2, 2015, Yashili bought Danone's milk powder brand Dumex China for HK $1.23 billion in cash.
    
On August 24, 2016, Aoyou Dairy acquired the Nutritioncare of Nutrition Company; in September 2016, it agreed to establish a joint venture with westlane to lay out overseas markets.
    
On September 18, 2016, Bright Dairy participated in the new Wright capital increase and allotment project with NS $3.9 billion.
    
In October 2016, Yili proposed to acquire a 37% stake in China Shengmu. On April 28, 2017, Erie announced the termination of the transaction.
    
On May 10, 2017, Yili announced that it would bid for all the shares of Danone Group's first yogurt brand Stonyfield in the United States.
    
On May 23, 2017, Aussie Dairy announced the acquisition of 100% and Ozfarm50 shares of ADP, an Australian dairy company.
    
On May 30, 2017, Bright's New Wright announced the completion of the acquisition of NZDC100 of the shares of New Zealand Dairy Company.