Automation Opportunities in China’s Dairy Industry

20 years ago, due to the reasons of lower incomes and consumption habits, dairy products – at that time mainly milk powder – were consumed by selected population segments in China such as infants and children, the sick and the infirm. With China’s speedy economic growth and consequently changing consumption habits, dairy products have become one of the most important nutritious food in people’s daily lives recently. Thus China’s dairy industry has entered a phase of rapid growth since 1998 with a double-digit annual growth rate. However, the dairy consumption per capita in China is still far below the world average. With a huge population, China shows its considerable market potential. In 2011 total consumption of dairy products in China reached 30 million tons. It is assumed based on the current consumption trends that dairy consumption will continue to grow at 10-15 % per year over the next 10 years.

Sanlu Dairy Scandal Reshuffles Industry

Despite the rocketing increase of the dairy industry in China, Sanlu Dairy’s melamine scandal in 2008 gave a bleeding warning of safety and quality management shortcomings in the whole food and beverage industry. The government enacted more strict policies and regulations to ensure food safety, resulting in the whole dairy industry experiencing a period of reshuffling. Many small companies went bankrupt or merged into big companies. The companies that survived learned to pay more attention to the safety and quality of their products. They upgraded their production facilities and invested in more tracing systems and automation to ensure manufacturing safety. The latest regulation requires a from-farm-to-table dairy products quality tracking and tracing. Optimization of supply chain management becomes an urgent necessity for dairy manufacturers, distributors and retailers.

Dairy products: One of the most important nutritious food today in China


New Opportunities for Warehouse Automation

“We have over 20 automated warehouse spread over the whole country. Storage capacity of a single warehouse can reach 40 000 pallets. Automated warehouse is easy to control temperature and humidity and is important to ensure the products quality and safety and improve our efficiency.” released by one of the leading dairy manufacturers in China. Warehousing is a never neglected investment in dairy facilities. Factors such as an increasing number of SKUs, a heightened demand from retailers for more frequent just-in-time ordering of smaller quantities, and more stringent supply chain track and trace requirements have pushed manufacturers, distributors and retailers of dairy products to embrace more streamlined automated systems in their warehousing. Key players among local dairy manufacturers, like Yili and Mengniu, have added dozens of high-bay warehouses to their production facilities in the past 10 years. Most of these high-bay warehouses were installed by local system integrators, but they merely handle full pallets in and out. However, since consumption habits are changing, the design of new facilities tends to take into account more complicated processes, increased requirements of picking and sorting, better truck turnover with automatic loaders, etc. Dairy manufacturers have started to seek support from high-end providers of logistics solutions.

Future Demands in Cold Storage

Even though UHT milk still represents a high portion of dairy consumption in China, we see yoghurt as a quite promising segment for faster growth (see chart below). Yoghurt revenue has increased by almost 4 times in the past 5 years, holding high potential for continuous growth as a matter of consumers’ preference for more healthy food. Yoghurt consumption takes 15 % of the entire dairy industry and keeps a growth rate at 20 % every year. With the top 3 key players – Yili, Mengniu and Bright Dairy – adopting advanced technology, superior branding and abundant products portfolio, they clearly dominate the domestic market with a total share of up to 60 %. Most dairy products require a continuously chilled to frozen environment throughout the supply chain. But even the key players are operating with traditional flat warehouses in most of their facilities. When building up central distribution centers, some of the manufacturers and distributors have started to investigate automation in cold storage as a result of the increasing building cost, limits to land acquisition in big cities, high labor cost and labor safety issues, etc.

Source: McKinsey 'China's booming dairy market', June 2006

In conclusion, what I see as opportunities in dairy industry for material handling suppliers are:

  • Solutions with better tracking and tracing applications;
  • Integration of storage and distribution functions;
  • Automation in cold storage with reasonable investment;
  • High performance system to handle large volumes and various SKUs

4 Responses to Automation Opportunities in China’s Dairy Industry

  1. arahmae14 says:

    Businessmen who are in milk industries must learned the lesson from Sanlu Dairy scandal. Apart from well equipped machine, it is very important that every businessman and the government focus on the sanitary procedure in making a dairy product.


    • Vicki Chen says:

      I totally agree with you. And not only dairy industry but also the entire food and beverage industry must learn that.

  2. Ketaki Kolaskar says:

    It is a very well written post.
    In India , automation is done at the factory end and there is lack of concern for the warehouse automation.
    They only have cold storage rooms and DCs , rest all operations are manual.
    Lets hope that when the volumes increase to such an extent, that automation in warehouse is inevitable in both China and India

    • Vicki Chen says:

      Thank you for your comment. It is very interesting to hear about your insights of Indian market as we are also expanding our business in India. Automation in production is always a good start to leverage warehousing in future. Hope we’ll see the changes in India soon.

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