BEIJING, Sept 20 (Askume) – China is facing a milk shortage as falling birth rates and budget-conscious consumers have reduced demand, while dairy farms have expanded in recent years, forcing smaller farmers to close down and shipping milk to the United States.
China’s milk glut reflects an unintended consequence of Beijing’s food-safety-oriented efforts to boost the dairy industry by encouraging consumption and stimulating expansion . High costs and the fallout from a 2008 adulteration scandal that killed at least six children and hospitalized thousands have also limited export opportunities.
China’s per capita milk consumption is expected to fall to 12.4 kg in 2022 from 14.4 kg in 2021, as a sluggish economy and an aging population weakened demand for high-value foods such as cheese, butter and buttermilk, the latest Chinese data for the year provided by this bureau showed.
Meanwhile, milk output in China, the world’s third-biggest producer, rose from 30.39 million tonnes in 2017 to nearly 42 million tonnes last year, exceeding Beijing’s 2025 target of 41 million tonnes.
By 2022, Chinese milk prices had fallen below the average production cost of about 3.8 yuan ($0.5352) per kilogram, causing many loss-making farms to close and others to reduce their herds by selling cattle for beef, another oversupplied market.
Modern Dairy (1117.HK) , one of China’s leading producers, reported its dairy cow population halved, with a net loss of 207 million yuan ($29.07 million) in the first half of this year.
“Dairy farming companies are incurring losses selling milk and meat,” said Li Yifan, head of dairy (Asia) at commodity financial services company Stonex.
In the first eight months of this year, China’s dairy imports (mainly from New Zealand, the Netherlands and Germany) fell 13% year-on-year to 1.75 million tonnes. Chinese customs data showed that imports of the biggest dairy product – milk powder – fell 21% to 620,000 tonnes.
Rabobank Research said in a report last month that net dairy imports could fall by 12% in 2024 compared with the same period last year, and “the extension of the dairy downcycle could continue to impact imports into 2025.”
In 2018, the Chinese government called for the establishment of more farms and increased production as part of a broader effort to achieve food self-sufficiency, leading to an increase in the number of farms and the import of millions of Holstein cattle.
But in addition to a slowing economy, a drop in the birth rate means fewer babies need formula. Government data show China ‘s birth rate is expected to fall to a record low of 6.39 per 1,000 people in 2023 , down from 12.43 per 1,000 in 2017.
New Zealand’s A2 Milk Company (ATM.NZ) , which sells infant formula in China , said the Chinese infant formula market fell 8.6% in volume and 10.7% in value in the 2024 financial year to June, and could decline further in 2025. decline.
China’s dairy industry has also struggled to respond to Beijing’s 2018 call to educate consumers to “eat milk” rather than drink milk in a bid to boost dairy consumption.
Fluid milk accounts for 80% of China’s dairy consumption, but efforts to develop markets for cheese, cream and butter, and to transform milk into higher-value products with longer shelf lives, have been hampered by strict consumption policies.
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To control excess production, Chinese producers are processing raw milk into milk powder, which exceeded 300,000 tonnes by the end of June, nearly double last year’s level, the China Dairy Association said.
China is also trying to export whole milk powder, but the outlook is limited because of memories of the adulteration scandal, although many Chinese consumers are waiting for the government to improve food regulations and increase trust in foreign brands, StoneX’s Li said.
In the first half of 2024, my country’s dairy exports were 55,100 tons, an annual increase of 8.9%, but only a small part of the surplus.
Chinese dairy farmers’ reliance on expensive animal feed results in production costs being roughly double those of top exporter New Zealand, where cattle graze on pasture, according to StoneX calculations.
Oversupply at home makes it easier for Beijing to target EU imports of cheese, milk and cream in its trade dispute with the EU , even though these are niche products and this measure will do little to reduce excessive supply.
“Restricting dairy imports from the EU may provide short-term relief to Chinese farmers, but will not solve the deeper problems of overproduction and stagnant demand,” said Tanya Bhatia, consumer goods research analyst at the Economist Intelligence Unit.
In the longer term, suppliers still see opportunities in China.
Charlie McElhone, general manager of sustainable dairy products at industry body Dairy Australia, said he saw huge growth potential in China, which remained its biggest market.
“We are still looking into expanding into cheese in the future,” he said.
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