CHINA – China’s remarkable achievement in milk self-sufficiency, producing an additional 11 million metric tons of milk from 2018 to 2023, could see a massive impact on the global dairy industry.

The impact comes as evidenced by the sharp decline in China’s Whole Milk Powder (WMP) imports, which plummeted from an average of 670,000 metric tons (2018-2022) to just 430,000 metric tons in 2023.

The increase in domestic production is a direct result of rising incomes and living standards over recent decades. Previously considered a luxury item, milk and dairy products have become China’s kitchen staples, reflecting changing consumer preferences.

Despite these gains and China now emerging as the world’s second-largest dairy market after the United States, substantial growth potential remains, especially in underserved rural areas.

Although dairy was not traditionally a staple in China, the past four decades of economic growth have integrated milk and dairy into everyday diets, particularly for children.

Per-capita dairy consumption in China is still lower compared to other middle- and high-income countries.

Urban households consume more dairy than rural ones, highlighting a significant underserved population. Various trends are shaping the industry, with pasteurized fresh milk and ultra-high-temperature (UHT) milk now being the most popular segment.

The rise of coffee culture and milk tea stores has boosted the consumption of fresh and powdered milk. Cheese and butter are also gaining popularity, driven by home baking and Western food trends among affluent urban households.

Meanwhile, according to the China Business Industry Research Institute, China’s dairy industry surpassed US$69.6 billion in 2023.

Retail sales grew at a CAGR of 5.3% between 2016 and 2021 and are expected to maintain a CAGR of around 4.8% between 2022 and 2026, reaching US$83 billion. In 2021, total retail sales of dairy products reached US$65.2 billion.

The yogurt market also grew rapidly, with a CAGR of 8.4% from 2016 to 2021, reaching US$23.8 billion in 2022.

The powdered milk sector is split between declining demand for infant formula and increasing demand for adult milk powder. The adult powdered milk market grew from US$2.5 billion in 2021 to US$2.8 billion in 2022.

Meanwhile, New Zealand, the primary dairy exporter to China, faces challenges due to reduced Chinese demand. The country must find new markets for nearly 150,000 metric tons of WMP, equivalent to 1.3 million metric tons of milk or 6% of New Zealand’s annual production.

Despite accounting for less than 3% of global cow milk production, New Zealand represents over 25% of the international dairy trade. New Zealand’s WMP exports peaked in 2021 but declined in subsequent years, prompting a shift in export strategy towards SMP, butterfat, and cheese.

This shift offset a 255,000 metric ton decrease in WMP exports between 2021 and 2023. New Zealand also increased WMP exports to Algeria, the world’s second-largest WMP importer, affecting the European market, which is traditionally Algeria’s supplier.

This diversion led to a nearly 40% increase in New Zealand’s SMP exports from 2021 to 2023, putting pressure on SMP exports from the EU and the US.

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