Core Viewpoint - The Chinese dairy industry is currently facing challenges such as overcapacity and weak consumption, but experts believe that through advancements in deep processing technology and strategic restructuring, the industry can achieve high-quality development and overcome cyclical difficulties [1][6]. Industry Challenges - The industry is experiencing both overcapacity and reliance on imports, with a total milk production of 40.79 million tons last year and fresh milk prices hitting historical lows. The supply of raw milk exceeds demand, leading to increased losses in farming [2][3]. - The consumption pattern in China primarily focuses on liquid milk, which has a short shelf life and a rigid supply chain, causing rapid transmission of consumption fatigue to the farming sector and resulting in volatile raw milk purchase prices [2][3]. Deep Processing Opportunities - Developing deep processing is seen as a key solution to the challenges faced by the dairy industry. By extracting components like cream, butter, whey protein, and casein from fresh milk, companies can significantly increase their revenue. For instance, processing 100 tons of fresh milk can yield over 750,000 yuan compared to 262,500 yuan from direct powder sales [2][3]. Core Challenges in Deep Processing - There are four main challenges in deep processing: 1. Technical path differences, as domestic processes must start from fresh milk rather than whey liquid [3]. 2. Lack of mature application scenarios for by-products like casein and lactose [3]. 3. Absence of regulatory standards for residual materials post-extraction [3]. 4. Insufficient collaboration across the industry chain, requiring participation from cheese, infant formula, and baking sectors [3]. Strategic Recommendations - Companies are advised to abandon the "small but beautiful" mindset and instead compete directly with leading brands through large product branding to achieve scale [4]. - The concept of "freshness" should be integrated into brand positioning, product structure, and channel development [4]. - Regional dairy companies should leverage local advantages to create differentiated brand systems, as demonstrated by Shandong Jiasheng Dairy's 60% growth during the pandemic [4]. Successful Case Study - Xinjiang Tianrun Dairy has achieved 1 billion yuan in sales outside its region by capitalizing on the unique qualities of its milk and innovating its distribution channels, including over 800 self-built specialty stores and a new retail model combining online and offline strategies [5]. Future Transformations - The dairy industry is expected to undergo three major transformations: 1. Accelerating the localization of deep processing technology and addressing the value realization of components [6]. 2. Shifting from opportunistic strategies to a more structured approach through brand remodeling and comprehensive channel strategies [6]. 3. Regional companies focusing on geographical advantages, product differentiation, and channel innovation to establish an irreplaceable position in niche markets [6].

Core Insights - The global dairy industry is experiencing significant growth, particularly in cheese as a high-value product, driven by a balance of traditional craftsmanship and innovative thinking [1][3] - Inner Mongolia Quanmu Food Co., Ltd. is emerging as a unique player by blending nomadic dairy culture with modern management, establishing a distinctive development trajectory [3][4] - The cheese consumption has maintained a compound annual growth rate of 4.3% over the past five years globally, with the Asia-Pacific region showing an impressive growth rate of 7.8% [3][4] Industry Trends - The diversification of consumer demand is pushing producers to innovate beyond traditional boundaries, leading to the introduction of various aging series and ready-to-eat cheese snacks [4] - Geographic advantages of milk sources are crucial, with Nordic companies producing creamy products and Mediterranean firms cultivating distinctive flavors through special cultures [4] - The evolution of consumer behavior is evident as local quality brands gradually replace imported products, reflecting increased national confidence and understanding of local taste preferences [4] Technological Advancements - Traditional dairy companies are facing challenges in adapting to digital transformation, with some leveraging blockchain for traceability and social media for personalized branding [5] - Inner Mongolia Quanmu Food Co., Ltd. has established a smart management system from farm to consumer, utilizing short videos to recreate nomadic life scenes for consumers [5] Sustainability Practices - Environmental issues are reshaping industry standards, with companies developing carbon-neutral packaging and sustainable farming practices [5] - Inner Mongolia Quanmu Food Co., Ltd. incorporates sustainable development into its operations, including crop rotation for soil protection and the use of new energy vehicles for transportation [5] Innovation and Tradition - The interplay of taste memory and innovation remains a central theme, with traditional cheese-making practices coexisting with modern experimental techniques [5] - Inner Mongolia Quanmu Food Co., Ltd. fosters collaboration between traditional artisans and modern food engineers to innovate while preserving cultural heritage [5]

Group 1 - The eighth China International Import Expo (CIIE) will continue to set up a procurement corridor to enhance supply-demand matching and improve cooperation effectiveness [1][4] - The procurement corridor in Hall 8.2 will focus on agricultural products, consumer goods, and health products, featuring a selection meeting for approximately 20 high-quality buyers [1][2] - The first batch of announced enterprises includes major retail and internet companies in China, indicating strong demand and a well-established supply chain [2][4] Group 2 - The procurement needs of the announced enterprises cover all areas of the agricultural products exhibition, allowing for a clear presentation of purchasing preferences and directions [3] - A dedicated negotiation area will be set up for buyers to engage in multiple rounds of face-to-face discussions with exhibitors, facilitating deeper cooperation discussions [4] - The first batch of participating companies includes JD.com, Dashang Group, Greenland Zhongxuan, and others, showcasing a diverse range of procurement interests [4][22]

Investment Rating - The report rates the food and beverage industry as "Overweight" [1] Core Insights - The dairy price is expected to stabilize in the second half of 2025 after a prolonged adjustment cycle lasting over three years, with over 80% of the industry facing losses [6][60] - The report highlights the cyclical nature of raw milk prices influenced by production capacity, demand, and imports, with significant historical fluctuations noted [6][19] - The report emphasizes the correlation between raw milk prices and the stock prices of upstream dairy companies, suggesting that stock prices may react ahead of milk prices during cyclical changes [6][35] Summary by Sections 1. Raw Milk Price Cycle - The raw milk price is influenced by multiple factors including production capacity, demand, and imports, creating a cyclical pattern [6][19] - The dairy industry is characterized by a long breeding cycle for dairy cows, leading to delayed responses in production capacity adjustments [18][19] - Historical data shows three downward cycles and two upward cycles in raw milk prices since 2008, with significant events impacting demand and prices [19][26] 2. 2025 Outlook - The industry is currently facing severe losses, with a continued trend of dairy cow capacity reduction expected [60][62] - Policy support is anticipated to improve dairy product demand, contributing to a gradual stabilization of milk prices in the latter half of 2025 [60][64] - The report forecasts that as the supply-demand balance improves, raw milk prices may stabilize, benefiting upstream dairy companies [60][62] 3. Correlation Between Milk Prices and Dairy Company Stocks - The report notes a high correlation between raw milk prices and the stock prices of upstream dairy companies, indicating that stock prices may respond more quickly to changes in market conditions [6][35] - The performance of downstream dairy companies is also influenced by their product structure and market expectations, which can affect their stock prices during different price cycles [6][35] 4. Investment Recommendations - The report suggests focusing on leading dairy companies such as Modern Dairy and Yurun Dairy, as well as major dairy enterprises like Yili and New Dairy, which are expected to benefit from the stabilization of milk prices [6][60]