6 June, 2008 – China's new policy designed to eradicate older, more inefficient producers will serve to help the industry's major players in the long-run, said analysts Morgan Stanley.
The assessment came as the Government announced new plans to regulate expansion in its dairy industry – the world’s third largest. Under the proposals put forward by the National Development and Reform Commission, 2.5 million metric tonnes (MMT) of ageing and inefficient capacity would be cut from the sector by 2010. This would rise to 6 MMT by 2012.
Commenting on the policy, Morgan Stanley said the move was likely to be good news for China’s two biggest dairy producers.
The analysts said: “We think the newly issued Dairy Industry Guidance by the NDRC should be positive to Mengniu and Yili. However, the impact would likely be felt in the long term rather than near term as the policy mainly focuses on streamlining industry structure, which we believe could take years.”
Those operations that have established raw milk procurement systems will lead this consolidation, said Morgan Stanley.