Smallholder vs. Large-Scale Dairy Farms: Who Should Be Supported, and How?
Foodthink Editorial
This article builds on that case from social, economic and environmental perspectives. Addressing the reasons why small-scale dairy farmers in China are being marginalised, it sets out specific measures to support them. The principal data derive from field research conducted in 2023 in a major dairy-farming county in Shandong by Feng Xiaojun and team at China Agricultural University.
I. Smallholder vs. Large-Scale Dairy Farms: Who Should Be Supported?
Supporting farmers to enter meat, egg and milk production is therefore an important avenue for raising rural incomes. When capital floods into dairy farming, it squeezes out smallholder dairy farmers and closes off that avenue for income growth. This is precisely the story that has unfolded in China over the past twenty years.
From smallholder to larger-holding to large-scale corporate dairy farm, the intensity of labour input steadily declines and the absorption of rural labour falls away, making each successive step ever less favourable to farmers’ income growth.
A smallholder family dairy farm run by a couple with no hired workers typically keeps fewer than 30 head. A couple plus one hired worker, if extremely hardworking, can manage around 60 head. Two generations of a family — parents and grown children, four working members at the core, with a few hired workers on top — can manage around 150 head.
A well-off farmer’s farm run mainly by hired labour commonly ranges from 200 to 1,000 head. The farmer himself still works the land, but the operation relies mainly on hired workers drawn from neighbouring households, averaging roughly 30 head per worker. Any farm of over 1,000 head qualifies as a large-scale dairy farm, run essentially by an enterprise with hired labour — predominantly university graduates — averaging roughly 40 to 50 head per worker.
In the era when smallholders were China’s principal raw milk producers, keeping dairy cows markedly improved rural living standards and allowed farming families to build settled, contented lives in their home villages rather than leaving to find migrant work. Here are the memories of smallholder dairy farmers in the research area:
“I had a car by 2004 — the first in the whole village to own one.”
“Keeping cows took me from having nothing at all to owning a car and a grand house.”
In the research area, once smallholder dairy farmers were pushed out of the industry, most fell back on casual work. Figure 1 shows a day-labour market in the research area at dawn: grey-haired men looking for day labour, mostly on construction sites.
On top of that, China’s tariffs on imported dairy products sit at the lower end by international standards, so the landed raw milk price of imported dairy has long been below the price of China’s own raw milk (Figure 2). Moreover, in the wake of the melamine incident, Chinese consumers lost trust in domestic milk, particularly infant formula. Taken together, these factors intensified the pressure of imported dairy on China’s own production.
Under these circumstances, as Table 1 shows, smallholder dairy farmers, whose production costs are lower than those of large-scale farms, help China withstand the impact of imported dairy.
There are many reasons why smallholder production costs are lower.
First, labour costs. Smallholder dairy farmers rely on family labour rather than hired workers.
Second, feed costs. Part of a smallholder’s feed comes from crop straw and maize grown on their own land, whereas a large-scale dairy farm sources virtually all of its feed from the market. Smallholders favour locally sourced, inexpensive feed — a low-input, low-output model (Table 1). Large-scale farms, chasing high yields, turn to high-value feed, including imports.
Third, management costs. Smallholders manage their herds in a relatively extensive manner, while large-scale farms employ intensive management that carries higher costs. For instance, smallholders rarely divide their cows into separate groups and use just three or four types of compound feed. A large-scale farm, by contrast, divides its herd into no fewer than ten groups based on each cow’s stage in the production cycle and its lactation characteristics, then assigns a specialist feed nutritionist to tailor a feed formula for each group.
Fourth, infrastructure and equipment costs. A smallholder’s housing is either behind the family home or within the village, so land costs are zero or very low. As Figures 3 and 4 show, smallholder buildings are of modest specification, while those of larger dairy farmers and large-scale farms are of much higher specification. In addition, large-scale farms favour replacing manual labour with machinery, and the bigger they are, the more they rely on it.
The two also handle animal waste differently. In the research area, smallholders typically return manure to the land through land application, or sell it to local vegetable growers via a manure dealer for the same purpose.
Large-scale farms in the research area claim to use equipment for solid–liquid separation of slurry. The separated solids go into a digester tank and, after treatment, are used as cubicle bedding. The liquid fraction flows into an oxidation pond, where it ferments before being spread on fields. Typically, large-scale farms lease land, claiming to grow feed crops; in reality, however, that land is often used to dump the farm’s liquid waste.
Large-scale farms once triggered an environmental protest. In 2014, in Fanzhong Village, Tongshan County, Hubei Province, villagers blockaded Modern Dairy Company’s 10,000-head dairy farm for two full weeks, ultimately forcing the farm to relocate. The farm had long been dumping large quantities of digestate and cow manure on neighbouring land, resulting in the complaint that “it stinks all year round, especially in summer — so foul that one cannot even find a place to cool off.”
Smallholder farmers use their cows in a measured, long-term manner; large-scale farms extract the last drop and discard. In the research area, smallholders typically milk twice a day and cull a cow after five to six calvings. Large-scale farms milk three to four times a day to boost output and cull each cow after just two or three calvings. This is a production model that pushes output through intensified nutrition and exploits only the period of a cow’s peak lactation. Every cow’s life is a hard and brief one.
Making cows more comfortable does raise output. On large-scale farms, heat abatement is more thorough: there are soft cubicle beds, imported automated cow-scratching brushes … things smallholders do not have. But none of this offsets the hardship and brevity of these cows’ lives.
1. Policy bias
Because milk is produced daily and is highly perishable, and because smallholders operate on a small scale, they face a natural disadvantage vis-à-vis dairy processors. This disadvantage is reinforced by the following factors.
First, the government’s long-standing livestock-sector industrial policy, which favoured large-scale dairy farms, has marginalised smallholders. From the 1980s up to 2008, the Chinese government supported the development of smallholder dairy farmers. After the melamine incident in 2008, the government equated smallholders with backwardness and food-safety risk, and large-scale farms with modernity and safety, channelling public funding overwhelmingly towards the latter.
Second, the government’s long-standing processing-sector industrial policy, which favoured large dairy processors, has deepened the power imbalance between smallholders and processors. In the wake of the melamine incident, the government shut down a large number of small and medium-sized dairy processors, raised the minimum capacity requirements for new entrants, and encouraged mergers and acquisitions.
Third, the government’s dairy import policy undermines the interests of China’s domestic dairy producers, especially smallholders. Large-scale farms, having closer ties with processors, enjoy more secure sales channels. Smallholders, by contrast, are hit harder by imported dairy.
2. Dairy processors’ short-sightedness
One industry veteran observed that over the past few decades, China’s leading dairy processors have pursued a path of eliminating smaller neighbours rather than growing the pie for the whole industry; of holding multiple stakeholders hostage for their own benefit rather than fostering the sector’s long-term development; and of cherry-picking the premium market rather than cultivating the mass market. They fail to see that only by developing the mass market can there be a steady stream of consumers for mid- and high-end products.
In 2021, per-capita annual dairy consumption in China was 18.2 kg for urban residents versus 9.3 kg for rural residents. Behind this stark gap lies the dairy processors’ abandonment of the everyday rural dairy market. In the countryside, dairy products are widely treated as seasonal gifts for visiting relatives rather than everyday food.
Such a short-sighted development path has shrunk what could have been a far larger dairy consumption market. Meanwhile, processors’ pursuit of premiumisation has driven them to build their own farms. Both trends have deepened the exclusion of smallholder dairy farmers.
The exclusion of dairy farmers occurs mainly when farm-gate milk prices fall. A price drop signals abundant market supply, strengthening processors’ bargaining power relative to the farming sector. Processors seize the opportunity to reject farmers’ milk or to push them into upgrading and retrofitting their operations — change or be cut off. After 2000, the first major price crash came in the wake of the 2008 melamine incident, driving a large number of smallholders out of the industry. The second crash occurred between 2014 and 2015, triggering a second wave of smallholder exits. The third crash, from 2022 to the present, has triggered a third wave in which smallholders have either merged with larger farmers or exited altogether.
III. How to Support Smallholder Dairy Farms?
First, abandon the policy favouring large-scale dairy farms and support the development of smallholder dairy farms. Since 2017, the central government has begun to reflect on past policies that favoured large-scale farms and has given more support to family dairy farms. In reality, however, large-scale farms are multiplying and routinely receive substantial government subsidies. This reflects a gap between the directional shift in national policy and its actual implementation on the ground.
To close this gap, the state needs to introduce more detailed and more forceful policies to support smallholder dairy farms. For example: (1) fundamentally reallocate government dairy-sector funding to prioritise smallholder dairy farms; (2) conduct a comprehensive assessment of the costs borne by large-scale dairy farms and levy compensation charges for the environmental and social impacts they generate, so that large-scale farms are held to their true operating costs and adjust their direction of development accordingly; (3) encourage dairy processors to source raw milk from smallholder dairy farmers, for instance by linking the proportion of smallholder milk in a processor’s raw-milk input to tax and fee reduction policies.
Second, abandon the policy favouring large dairy processors, guard against and curb the trend towards concentration in dairy processing, and take multiple measures to support small and medium-sized local dairy processors. An excessive pursuit of large-scale enterprise leads to big companies ① leveraging their dominant position to pursue short-term, self-serving interests rather than the long-term interests of the industry; ② abusing their power along the supply chain to the detriment of other stakeholders; ③ capturing government behaviour, undermining public trust, and impeding food-safety regulation; ④ lengthening the distance between production and consumption, creating inefficiency. The government should therefore support small and medium-sized dairy processors, fostering a landscape in which processors of all scales flourish together.
Third, take multiple measures to build smallholder dairy farmers’ bargaining power relative to dairy processors. ① Smallholder dairy farmers are small and scattered; only in unity is there strength. Dairy farming clusters are mostly run by milking parlour owners, but they have played a role in resisting price-cutting and milk-payment delays by dairy processors, and have had a positive effect on technology transfer and raw-milk safety oversight. It is recommended to promote the dairy farming cluster as an organisational form for developing smallholder dairy farming, while at the same time encouraging clusters to evolve into genuine, farmer-led cooperatives.
② Develop social organisations led by smallholder dairy farmers. At present, the various levels of Dairy Association across China are largely dominated by dairy processors and large-scale farms, leaving smallholders without a voice. Beyond dairy farming clusters, smallholders should develop their own social organisations to promote internal self-governance among smallholder communities and, externally, to stand united and speak on behalf of smallholder dairy farmers.
③ Regulate dairy processors’ purchasing behaviour and curb arbitrary impositions of cost on farmers, as well as price-cutting and rejection of milk. Establish a negative list governing processors’ conduct — for example, prohibiting the bundling of raw-milk purchases with the sale of feed, consumables, or equipment and facilities. Establish a list of legitimate grounds for processors to cut prices or reject milk, and prohibit price-cutting or rejection outside that list. Dairy farmers have limited ability to test raw-milk quality themselves, which allows processors to distort quality assessments to justify arbitrary price cuts or rejections. To address this, a national testing and inspection body should be designated to provide publicly funded, third-party raw-milk quality testing services.
Fourth, vigorously support dairy farmers’ own processing operations. The significance of dairy farmers establishing their own processing lies in rationalising the distribution of profits to mobilise enthusiasm on the farming side, thereby improving raw-milk quality and raising farmers’ income.
The main difficulties currently facing dairy farmers who set up processing operations lie in national dairy-industry policy restrictions on the minimum capacity of new processing plants, and in limits on the distance between processing plants. These restrictions mean that many dairy farmers cannot obtain a dairy processing licence, cannot distribute their products through supermarkets or schools, can only obtain a food-service licence, and sell dairy products to the public by operating their own milk bars. However, milk-bar sales volumes are limited and cannot effectively reduce dairy farmers’ dependence on large processors.
To address this, these restrictions should be relaxed. But relaxing them does not mean dairy farmers can run successful processing operations on their own. How, for instance, do they negotiate with supermarkets? How do they compete with existing dairy processors, which have already moved deep into the chilled fresh-milk segment that farmer-run processing typically occupies?
Currently, the main actors in farmer-run processing are larger dairy farmers who own at least several hundred cows, and individual smallholders on the urban fringe. To survive in a competitive environment, dairy farmers need to join forces. Forming producer cooperatives, pooling small cooperatives into a cooperative federation, and having the federation establish a dairy processing company to compete in the market — this is the path to prosperity for dairy farmers in countries such as New Zealand and Denmark, and is worth China’s reference.
Fifth, mobilise consumer power and activate a bottom-up food-safety oversight system. China’s current food-safety regulatory system emphasises the scaling-up of production entities and top-down oversight. This has generated a host of problems.
If the country is to shift towards developing smaller and medium-sized raw-milk producers and processors, it must establish a food-safety regulatory system to match. Given the small, dispersed character of these operators, emphasis should be placed on building a bottom-up food-safety oversight system. Milk consumers are natural food-safety inspectors. Future food-safety oversight should mobilise consumer communities and follow a mass-line approach.
Sixth, use the current dairy crisis to reset the direction of dairy development and strengthen relief policies for farmers during severe farm-gate milk price crashes. China’s raw milk prices have been falling for four years. This crisis has laid bare the flaws of the sector’s past development path and offers a welcome opportunity for reflection. Relevant authorities should use this crisis to rebuild consensus and steer China’s dairy industry towards a healthier trajectory.
Seventh, in the long term, rethink the tariff policy on dairy imports. China’s currently low agricultural import tariffs were a concession made to secure WTO accession. In essence, this amounts to robbing the farmer to enrich the merchant — while the absence of agriculture undermines stability, and the absence of industry and commerce prevents prosperity. Such policies have driven the hollowing-out of the countryside while simultaneously fuelling China’s export-oriented manufacturing and generating non-agricultural employment for hundreds of millions of rural workers.
The prerequisite for adjusting such policy is a restructuring of China’s circulation patterns. If China cannot reduce the importance of external circulation in economic development, then the room for this kind of policy adjustment will remain limited. If China ultimately achieves a new development pattern in which domestic circulation is the mainstay and domestic and international dual circulation reinforce each other, then there will be room for these policies to be loosened.
IV. Summary
The key to developing family dairy farms lies in changing the weak bargaining position of smallholder dairy farmers relative to dairy processors. To this end, the government should abandon policies favouring large-scale dairy farms and large dairy processors, and support the development of family dairy farms and small and medium-sized dairy processors; take multiple measures to build smallholder dairy farmers’ bargaining power relative to dairy processors; vigorously support dairy farmers’ own processing operations; mobilise consumers and activate a bottom-up food-safety regulation system; use the current dairy crisis to reset the direction of dairy development; and, in the long term, rethink the tariff policy on dairy imports.
Author’s Note
For readers interested in how China’s smallholder dairy farmers are being excluded and how large-scale farms have risen, see: Xiaojun Feng. 2025. Cost competition or power struggle? The exclusion of dairy farmers from raw milk production in China. The Journal of Peasant Studies. https://doi.org/10.1080/03066150.2025.2539842
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[3] Image source: Liu Changquan, Han Lei, Zhang Yuanhong. (2018). An International Comparison of China’s Dairy Industry Competitiveness and Development Strategies. Rural Economy in China, 7, 132–146.
[4] World Dairy Industry Development Report. 2021. China Agricultural University Press. p. 8.
[5] Modern Dairy Crisis Investigation: In the Post-Melamine Era, the 10,000-Head Farm Model Suffers a Heavy Blow. 2014. https://www.thepaper.cn/newsDetail_forward_1282965
[6] Modern Dairy Crisis Investigation: In the Post-Melamine Era, the 10,000-Head Farm Model Suffers a Heavy Blow. 2014. https://www.thepaper.cn/newsDetail_forward_1282965
[7] Some Reflections on China’s Dairy Supply Development Strategy! 2024. https://mp.weixin.qq.com/s/zZoMFp3Av1-FTU2Nz8bVaA
[8] National Bureau of Statistics Data. 2025. https://data.stats.gov.cn/easyquery.htm?cn=C01
[9] World Dairy Industry Development Report. 2021. China Agricultural University Press.
[10] Various Sectors Gather in the Great Hall of the People to Discuss China’s Second Wave of Dairy Development. 2008. China Dairy Cows.
Editor: Xiaodan