Empirical Research On The Competition Of China's Liquid Milk Industry Chain

With Mengniu's rapid rise and Melamine events, China liquid milk industry has experienced fluctuating development from industry initial to rapid growth in the past ten years. As the development of China's dairy industry and the growing strength of market competition, the competitive scope is expanding to upstream and downstream of industry chain. According to Bain's classification system, the market structure of China's liquid milk industry belongs to oligopoly IV. From the evolution of market concentration, the whole trend of China's dairy industry market concentration has increased with phased adjustments in the past ten years. The traditional SCP (market structure---market conduct---market performance) paradigm points out that higher market concentration will lead to higher market performance. Meanwhile, industry life cycle theory argues that enterprises in rapid growth will generally get higher profit level. However, Annual Report of the listed companies in the dairy processing reveals that annual net profit margin of China's dairy products processing enterprises maintains at the low level of about 3%for a long term. This thesis demonstrates the current situation that the concentration of China's liquid milk industry is high, but the profit level is low. Setting foot in China's liquid milk processing enterprises, it analyzes the upstream and downstream market of China'liquid milk chain with empirical method to find out the main factors determining to the profit distribution.This thesis uses empirical research as the main line, bases on the relevant data of China's dairy industry from 1999 to 2009, and comprehensively applies to the correlation method of Measure Economics and Games Theory. Firstly, through surveying the dairy industry, the empirical analysis concluded that liquid milk industry is in the end of growth and early stages of mature, but the liquid milk processing enterprises stays at a low profit level for a long term. Secondly, based on five kinds of power competition model, it reveals that the industry competitive pressure mainly comes from the competition between upstream and downstream chain and the root causes of liquid milk industry profit distribution lies in milk source and packaging material. Thirdly, according to the conclusion of the prior two phases'analysis and the industry data of China's liquid milk since 1999, this thesis builds dynamic games of complete information and evolutionary game for depth analysis of liquid milk in the chain of interaction mechanism. Fourthly, based on the conclusion of model analysis, the current thesis provides corresponding policy suggestion aiming at laws, the relevant policies as well as liquid milk processing enterprises. Fifthly, on the basis of industry analysis and model analysis, the thesis makes a prospect to the development of the liquid milk industry.The thesis draws the following conclusions by empirical analysis of the liquid milk industry chain:1,China's dairy industry is in transition phase between the end of growth and early stages of mature. However, the processing enterprises, as the key hub link of China's dairy industry chain, haven't got the high profits which they deserve to get in this phase of development, but stand at a completely low level of profits (the average net profit margin has been in about 3%)2,The competitive pressure of China's liquid milk industry mainly focuses on the preservation of technology-based packaging material and milk processing enterprises in the control of milk. These are the two main factors determining the profit distribution of liquid milk industry chain.3,In the case of the same milk cost, package material suppliers' profits increase with enhancing the competitiveness of downstream processing enterprises, and decrease with increasing intensity of competition in packaging material market. Liquid milk processing enterprises' profits increase with increasing intensity of competition in packaging material market, meanwhile decrease with enhancing the competitiveness of liquid milk processing enterprises.4,Milk control model directly affects liquid milk processing enterprises' milk supply cost. The degree of internal control of milk within liquid milk processing enterprises has an inverse relationship with the milk supply cost.5,Whatever the market structure, milk cost is in inverse proportion to both packaging material suppliers' profits and downstream processing enterprises' profits, that is decreasing milk cost as well as increasing milk control profits both packaging suppliers and liquid milk processing enterprises.6,The competition between packaging material suppliers and downstream liquid milk processing enterprises focuses on the market structure of upstream and downstream industry chain:the favorable change for downstream enterprises is to increase the competitive intensity of packaging material market and reduce the competitive intensity of end-market; the favorable change for packaging material suppliers is to maintain packaging material market monopolize market structure and improve the competitive intensity of end-market.