Has China's Dairy Structural Adjustment Policy Achieved Its Goal?

Abstract

A series of dairy structural adjustment (DSA) policies was introduced by the Chinese central government to restructure dairy farms after the 2008 melamine contamination scandal in China. This paper seeks to explore the impact of Chinese DSA policies on farm level structure change. There were three parts of this policy: (1) milk collectors' control; (2) manufacturers' raw milk supply source regulation; and (3) assistance to expand large-scale farms. This policy reform is oriented towards large-scale dairy farms. The purpose of this policy is to restructure dairy farms by reducing small-scale farms while promoting the large-scale farms. The results show that the Chinese DSA policy greatly increased the herd and outputs of the large-scale farms but failed to reduce the market dominance of small-scale farms. Also, this policy was not able to boost the market share of medium-scale farms as well as the per cow productivity of those farms. This research reveals an opportunity to further understand both the impact of and rationale for the policy, and shows that a rethink of the dairy industry development in China is required.

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“…Medium sized firms, while less likely to be squeezed out directly, face rising costs as the demand for land, herds and feed go up, and additional investment is required to meet increasing industry standards. Recent evidence suggests that medium sized dairy firms have not increased their market share following the reforms (Rina, 2015) and that firms who survived the shakeout process had to make substantial investments to meet new regulatory requirements, an average of almost US$5 million (Astley, 2014).…”