2025-12-22 15:47Investment Rating - The report maintains a "Buy" rating for the industry, with an upward adjustment in profit forecasts for key companies like Yili and Mengniu [13]. Core Insights - The dairy industry in China is experiencing a prolonged down cycle in raw milk prices due to rigid supply and weak demand, with prices expected to fall below production costs by July 2024 [1][2]. - The core dairy product categories have seen a decline in both volume and price since 2021, leading companies to adopt discount promotions to reduce inventory, further lowering raw milk purchase prices [1][4]. - The potential for a market reversal in raw milk prices may arise from the active elimination of high-yield farms and the loss of cost-effectiveness of imported bulk powder [5]. Summary by Sections Industry Overview - From 2018 to 2021, China's milk production increased, with fresh milk prices growing at a compound annual growth rate (CAGR) of 6.4%, while imported milk powder prices fell by 5% [1][2]. - The current supply-demand imbalance is exacerbated by high production costs and a significant number of farms facing prolonged losses [1][2]. Market Dynamics - The B-end dairy product consumption is growing rapidly, with fresh milk accounting for approximately 45% of this market, although it is currently dominated by imported brands [6]. - Domestic companies are accelerating their entry into the B-end market, benefiting from policy support and cost advantages [6]. Consumer Trends - There is a noticeable decline in demand for high-consumption categories like ambient milk and yogurt, with significant inventory pressures prompting companies to discount products [4][10]. - The trend towards low-temperature and health-oriented products is evident, with flavored milk beverages emerging as a new growth point [8][9]. Competitive Landscape - Yili has a stronger channel bargaining power compared to Mengniu, with a more efficient deep distribution model and a diversified strategy that has led to leading market shares in several segments [12]. - The report predicts stable performance for liquid milk over the next 2-3 years, while non-liquid dairy products are expected to achieve double-digit growth [13].