I See through Everything

Chapter 256: Chapter 1139: A String of Happy Events

Fundamentally, the reason milk and beef prices in this country have always been higher than in Europe and America is mainly due to feed costs.

Take high-yield dairy cows, for example. Each cow requires about 15 tons of feed per year. The cost of a complete feed mix is 2,900 yuan per ton, bringing the total annual feed cost to around 43,500 yuan.

When factoring in other expenses, the production cost for each kilogram of fresh raw milk reaches about four yuan.

On the surface, that price seems quite low.

However, that’s just the production cost of raw milk. It still has to pass through collection stations. Even for company-owned pastures, the cost isn’t much cheaper. After further processing, transportation and sales costs are added, which further inflate the final price.

Currently, on the domestic market, the average retail price for pasteurized milk is between 16.7 and 20 yuan per liter, while UHT milk is between 14 and 15 yuan per liter.

Meanwhile, the gross profit margins for the big three of the domestic dairy industry are 37%, 32%, and 20%, respectively.

Therefore, to compete with them, we must find a way to reduce costs and increase efficiency.

How to reduce costs and increase efficiency?

The answer is obvious: use as little feed as possible to produce as much milk as possible, while simultaneously lowering the cost of that feed.

As long as the production cost of milk can be brought down to two yuan per kilogram, then by leveraging the transportation advantages of the production area, it would be possible to sell pasteurized milk for 14.5 yuan per liter and UHT milk for 12 yuan per liter in Gan Province and the Eastern Guangdong Region, all while maintaining a 33% gross profit margin.

When it comes to industry, sometimes a single change can have a massive ripple effect.

A new variety of Purple Alfalfa and a new variety of soybean could be enough to completely change the landscape of the domestic livestock industry.

As for whether other companies can keep up? Most likely, yes. But there will inevitably be those who fail to see the industry’s trajectory and get eliminated as a result.

Companies that can’t keep up with the times are bound to exist.

But Jiang Miao wouldn’t halt his own progress because of that. After all, that’s just the natural logic of business competition.

This was also why he had arranged for Hero Dairy to temporarily abandon its pasteurized and UHT milk products.

As Hailufeng Company begins to roll out its new varieties of soybeans and Purple Alfalfa, the domestic livestock industry will soon undergo a massive transformation.

At a time like this, Hero Dairy should keep its head down and focus on its strategy, upgrading its production lines in advance rather than trying to sustain its presence in the moribund liquid milk market.

Once the industrial upgrade begins and large quantities of high-quality, low-cost milk flood the market, they can instantly reclaim their market share.

By the time other dairy companies caught on and began to invest in the feed and pasture industries themselves, they would be at least a year behind. For some, due to internal squabbling, that delay could be even longer.

The reality is that with the passage of time, the domestic dairy market has become a red ocean. It’s not that the dairy companies aren’t profitable, but that the market itself is stagnant.

As Jiang Miao flipped through the various reports from the market research department, he noticed this serious problem.

Why, after two decades of rapid growth, has the domestic dairy market become so stagnant in recent years?

There were three reasons.

One was the issue of domestic dietary habits.

Another was the relatively high price of dairy products.

The third reason involved insufficient consumer purchasing power.

After all, when dairy companies refuse to lower their prices and consumers are strapped for cash, the market is naturally going to stagnate.

But if the dairy companies were to lower prices, they would face the problem of declining gross profit margins.

These companies ran the numbers again and again and concluded it was better to maintain the status quo. After all, a price promotion wouldn’t attract enough new customers to offset the losses, making it more trouble than it was worth.

This was the dilemma currently facing the domestic dairy industry.

In essence, they could no longer lower their production costs, and on top of that, they had to face competition from cheap imported dairy products.

After all, domestic dairy companies need to import 500,000 tons of bulk milk powder from New Zealand annually. This powder is mainly used to produce reconstituted milk and milk powder, or used directly as a food ingredient in products like bread.

This clearly showed that domestic raw milk production capacity was insufficient.

But due to those production costs, the scale of domestic dairy farming was already nearing its ceiling.

If Hero Dairy wanted to make its mark, it had to rely on its parent company’s technology to raise its own production ceiling and increase its output per unit.

What’s more, Hero Dairy had a hidden advantage that no other dairy company possessed.

That advantage was the regional industrial chain built by Hailufeng Company. This chain would increase the income of the local population, and with increased income comes increased consumer purchasing power.

Otherwise, how could you expect an old farmer earning just a few thousand yuan a year to make a daily habit of drinking a 250-milliliter bottle of milk? That was obviously unrealistic.

Take Magong Town for example. The current per capita annual income there has reached twenty to thirty thousand yuan.

Under these circumstances, the consumer enthusiasm of the average person in Magong Town was exceptionally high toward the end of the year. At the seafood market by the docks, red-hearted Xia Gu and wild groupers selling for over a hundred yuan a pound were in such high demand that supply couldn’t keep up.

This boom also drove strong local sales of Hailufeng Company’s live eels and premium-grade Egyptian Catfish.

With Hailufeng Company’s industrial layout, it would soon be able to raise the income level of the entire Gannan Region. When that happened, Hero Dairy could leverage its parent company’s local influence, run a few ads, and with its price advantage, it wouldn’t have to worry about sales.

An industrial layout that drives the overall development of a region, in turn raising the income level of the local population, is what’s needed to stimulate local consumption and sell one’s products.

Otherwise, if the locals were still earning peanuts like before, their wallets empty, it would be a miracle if the market wasn’t stagnant.

This was the fundamental reason for the country’s current market stagnation. A huge production capacity couldn’t find consumers. Consumers, due to low incomes, couldn’t afford to buy many products. This low consumption led to insufficient factory utilization, which in turn resulted in wage cuts and layoffs.

It was a vicious cycle.

The way this manifested in the market was deflation.

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