A report from Zhongtai Securities indicates that as dairy companies continue to refine their technologies, functional new products with high protein content and lactose-free features are emerging, along with an increasing variety of compound functional offerings. Functional dairy products are expected to maintain a growth rate above the overall market, potentially benefiting companies that can expand consumption scenarios, reach new customer segments, and drive repeat purchases through quality. The report recommends focusing on Yili Industrial Group (600887.SH), Mengniu Dairy (02319), and New Hope Dairy (002946.SZ).
Market Landscape: Dominated by low-temperature products, bucking the trend
In 2025, China's overall dairy market is under pressure, but the functional dairy segment is bucking the trend and emerging as the industry's highlight. From a category structure perspective, the low-temperature segment is the primary driver of growth, accounting for 78% of the total. Online sales of low-temperature milk reached 3.96 billion yuan, up 15.8% year-on-year, showing growth in both volume and price. Online sales of low-temperature yogurt hit 993 million yuan, surging 27.1% year-on-year.
The core driving force behind functional dairy products comes from the convergence of upgraded consumer health awareness and supply-side product innovation. On the demand side, consumers are shifting from basic nutritional supplementation to a pursuit of freshness, active nutrients, and precise functions. According to data from Qince Consumer Research, the functional dairy market is projected to maintain a compound annual growth rate of 15%-20% from 2026 to 2029, potentially exceeding 140 billion yuan in market size by 2029.
Core Segment Analysis: The four key ingredients in functional dairy
The core components of functional dairy products primarily fall into four categories: A2 beta-casein, probiotics, lactoferrin, and organic certification.
1) A2 Beta-Casein: Contains only A2-type beta-casein, without the A1 type, making its molecular structure closer to breast milk and easier to digest and absorb. Approximately 25-30% of consumers report digestive discomfort related to milk, making A2 milk a key solution. The global A2 milk market is estimated at $1.371 billion in 2025 and is expected to expand to $2.81 billion by 2034, with a compound annual growth rate of 8.3%.
2) Probiotics: Active probiotics like bifidobacteria and lactic acid bacteria regulate the gut microbiota and promote digestion and absorption. The size of China's probiotic industry market is expected to reach 117.1 billion yuan in 2025, with the dairy category accounting for 84.8 billion yuan. Dairy products represent 78% of the probiotic product market, making them the most important carrier for probiotics.
3) Lactoferrin: A core immune protein in breast milk, it promotes iron absorption, has antibacterial and gut-protective properties, and boosts immunity. Adding lactoferrin has become standard in infant formula, and it is now beginning to penetrate adult dairy products.
4) Organic Certification: The entire process, from pasture cultivation to dairy cow breeding, is organically certified, ensuring no antibiotics, hormones, or pesticide residues. This meets the dual demands of high-end consumers for food safety and sustainability.
Technical Barriers and Future Outlook
From a technical barrier perspective, the challenges in functional dairy products are primarily concentrated in three dimensions: strain research and development, protein separation, and activity retention. As technologies like flash evaporation, ultrafiltration, and ceramic membrane microfiltration become more mature, and breakthroughs in room-temperature active probiotic technology expand consumption scenarios, the industry is likely to continue its rapid expansion.
Risk Warnings: Macro consumption weakness, deteriorating competitive landscape, tightening regulatory policies, technology iteration risks, delays in updating research report information, third-party data distortion, and deviations in market size estimates.
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