Two Sessions' dairy industry advice: Break through regulations and standards restrictions on deep processing of dairy products

21st Century Business Herald Reporter He Hongyuan Beijing Report

China’s dairy industry has reached a critical turning point.

On one hand, surplus raw milk continues. On July 13, 2023, Li Shengli, Chief Scientist of the National Dairy Cattle Industry Technology System, Professor at China Agricultural University, and Vice President of the China Dairy Industry Association, disclosed that from 2023 to 2025, the industry will lose a total of 70 billion yuan in revenue from dairy cattle farming, and losses from fresh milk spray-dried powder production will reach 20 billion yuan.

At the same time, the core raw materials for dairy products are highly dependent on imports, constrained by Western countries. Notably, in recent years, some Western nations have repeatedly proposed restrictions on exports of key raw materials such as whey protein to China.

To some extent, these issues all point to one cause: long-term structural imbalance, resulting in an unreasonable pattern of “overproduction of low-end products and shortage of high-end products” in the domestic dairy industry.

This year’s National Two Sessions highlighted how to address these problems.

“An Inevitable Path”

During the 2026 National Two Sessions, Cold Youbin, a National People’s Congress deputy, Chairman of China Feihe, mentioned that China’s dairy industry supply chain faces increasing risks of “neck-breaking” bottlenecks and disruptions. Among various functional dairy raw materials, such as whey protein, lactoferrin, and alpha-lactalbumin, are essential components for infant formula and functional foods.

However, these core raw materials are currently mostly imported, leaving China’s related industry chains passive at the source.

Using whey protein as an example, Cold Youbin explained the risks. China is the world’s largest importer of whey protein, accounting for one-fifth of global imports. According to China Customs data, from 2012 to 2022, China’s whey protein imports increased from 376,000 tons to 599,000 tons, with an average annual growth rate of about 4.8%. The United States is one of the main sources. If this raw material faces restrictions or supply cuts, it could trigger supply chain disruptions and price fluctuations, severely impacting the supply and market stability of infant formula and other high-value dairy products.

Additionally, Cold Youbin pointed out that China’s dairy industry suffers from a significant imbalance in industry structure, with serious lag in the development of high-value-added deep processing products.

He compared the mature industry structure of countries like the Netherlands and France, where the ratio of liquid milk to deep-processed products is about 5:5. In China, liquid milk accounts for 92.7%, while high-value products like cheese and butter make up less than 7.3%, a severely unbalanced ratio (over 9:1). This clearly indicates that China’s dairy industry remains in the primary product stage, and upgrading the industry structure and extending the value chain to higher-end segments is urgent.

Further, Cold Youbin summarized that long-term structural imbalance has led to an unreasonable pattern of “overproduction of low-end products and shortage of high-end products” domestically. In recent years, with rapid growth in raw milk production, the problem of “surplus raw milk” has become more severe. Many dairy companies, in order to store excess raw milk, have to process it into ordinary industrial skimmed or whole milk powder. These products have low added value and utilization rates, resulting in resource waste and industry stagnation.

“In this context, developing key core technologies and deep processing, increasing the added value of raw milk, optimizing product structure, and focusing on increasing supply of high-value products are the keys to breaking the deadlock,” he said.

NPC deputy and Mengniu Group’s Global R&D Innovation Center Director of R&D, Shi Yudong, also mentioned that accelerating dairy deep processing is not only to alleviate the short-term pressure of “raw milk surplus,” but also a core engine for China’s dairy industry to shift from “scale expansion” to “quality and efficiency” transformation and upgrading.

“On one hand, deep processing acts as a ‘reservoir’ to regulate raw milk capacity; on the other hand, extracting high-value whey protein and functional ingredients can greatly improve the overall utilization efficiency of raw milk, breaking the long-standing dependence on imports of dairy raw materials, and is an essential path for the industry to diversify consumer products and enhance supply chain resilience,” Shi Yudong said.

In fact, domestic dairy companies have made breakthroughs in deep processing.

For example, Yili has used “targeted extraction and protection technology for lactoferrin,” increasing the retention rate of lactoferrin in room-temperature pure milk from 10% to over 90%, breaking technical barriers and making “golden milk” from a scarce resource more accessible; independently developed concentrated whey protein preparation technology, breaking long-term foreign technical monopoly, and safeguarding the supply chain security of infant formula.

Mengniu is also pushing industry toward higher added value. By December 2025, its first batch of deep-processed products—Mascarpone cheese, lactoferrin, pizza cheese, de-salted whey powder D90, micellar casein MCC—had completed testing, with Mascarpone cheese already on the market, and all products meeting national standards.

Cold Youbin mentioned that Feihe has completed the deployment of scaled production lines for concentrated whey protein, lactoferrin, de-salted whey, cream, and casein, achieving 100% self-sufficiency in 11 key raw materials, building a complete technical system of “frontier research—technology reserve—commercialization.”

Addressing Pain Points

However, China’s dairy deep processing faces many pain points, especially regulatory and standardization constraints.

Cold Youbin cited that developing and scaling high-value functional raw materials such as bioactive peptides, lactoferrin, and human milk oligosaccharides (HMOs) currently faces significant issues with standard system adaptation. Some provisions in current dairy regulations have been in place for years, restricting innovation. For example, Feihe’s technological breakthroughs allow extraction of protein components from defatted powder, increasing raw milk’s added value and utilization, helping to ease “raw milk surplus” and protect farmers’ interests. However, according to current “National Food Safety Standard: Whey Powder and Whey Protein Powder,” only raw milk can be used for deep processing, which limits the application of these new technologies.

Furthermore, global demand for high-quality proteins like casein, related to adult immunity and muscle health, is rising, but domestic companies face raw material restrictions, making large-scale, efficient extraction and deep processing difficult, further limiting China’s autonomous supply capacity in high-end functional dairy raw materials and hindering industry upgrading. Additionally, lagging quality testing technology for deep processing increases compliance costs for domestic dairy companies.

Therefore, Cold Youbin proposed that to meet the rapid development of dairy deep processing technology, it is necessary to promptly adjust and improve relevant laws, regulations, and assessment systems, enhance testing technology, and develop industry standards aligned with domestic industry development. This includes encouraging enterprises to register and apply for raw material products, speeding up approval processes, establishing evaluation methods for new technologies, processes, and products, and conducting pilot projects for dairy deep processing under safe quality assurance to foster a more flexible and incentivizing policy environment, promoting technological independence and industry upgrading.

Shi Yudong agreed.

He suggested strengthening regulatory frameworks, prioritizing the improvement of industry standards, accelerating the formulation and revision of key standards related to dairy deep processing, and providing a compliant basis for rapid industry development to protect consumer rights.

He also recommended advancing standardization research for dairy deep processing, supporting the development of standards for industrialization, and speeding up the approval, quality standards, and testing methods for new dairy deep processing products. This aligns with the industry’s shift from “quantity increase” to “quality improvement,” providing clear guidance for innovation.

However, it must be recognized that China’s enterprises still face significant technological gaps in dairy deep processing.

For example, in core deep processing technologies, some key processes still rely heavily on imported technology and process packages, with low domesticization rates of high-end processing equipment. Insufficient industry-academia-research collaboration and weak pilot-to-production conversion capacity hinder product quality stability and slow industry upgrading.

Based on this, Cold Youbin suggested that during the “14th Five-Year Plan,” the goal should be to raise the domesticization rate of core raw materials like whey protein to over 60%, better ensuring the autonomy of the dairy industry supply chain. The government should increase support for dairy deep processing enterprises, funding technological innovation projects and industry upgrades—such as establishing special subsidies for technological transformation, equipment upgrades, and new product R&D; providing land and financial support for raw material production bases; and offering tax incentives or preferential policies for companies engaged in key functional raw material R&D, production, and using domestic milk sources to produce high-quality functional dairy raw materials, reducing operational risks and accelerating innovation and industry development.

Meanwhile, Cold Youbin recommended cultivating over a thousand core R&D and engineering talents with international competitiveness through interdisciplinary training and curriculum innovation, building a solid talent support system to drive high-quality dairy development and serve national strategies.

Shi Yudong believes that building a comprehensive support system across the entire industry chain is also a key solution.

He suggested integrating dairy deep processing into national grain security and food industry development plans, supporting the construction of dairy deep processing industrial parks in key regions, improving cold chain logistics and testing services, promoting digital transformation across the entire dairy breeding, processing, and distribution chain, and guiding leading enterprises to play a “chain leader” role, encouraging small and medium players to join the deep processing industry chain, and building a modern dairy industry system with close benefit linkage and strong resilience.

(Edited by Wen Jing)

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