CHINA – China’s dairy industry is experiencing a significant surge in milk production despite the challenges faced during the past decades.

According to the National Bureau of Statistics, milk production in China reached 41.97 million tons in 2023, a 6.7% increase from the previous year.

The production surge surpassed the Ministry of Agriculture and Rural Affairs’ “14th Five-Year Plan to Enhance the Competitiveness of Dairy Products” target of 41 million tons by 2025, achieving the goal two years ahead of schedule.

However, this rapid growth has led to excess capacity in the industry. Research data shared by Li Shengli, Chief Scientist of the National Dairy Industry Technology System and Vice President of the China Dairy Association, indicated that the surplus of raw milk exceeded 2 million tons in 2023.

Dairy companies have ramped up powdered milk production to manage this surplus, processing an average of 20,000 tons of raw milk into powder daily from April to May 2024. This accounted for about 25% of the total collected milk.

Yu Kangzhen, a consultant to the State Council and former Deputy Minister of Agriculture and Rural Affairs, highlighted these issues during the 15th China Dairy Conference in Wuhan.

He emphasized the necessity of dairy products that align closely with consumer demands, noting potential growth in segments like milk, tea, and coffee.

According to Yu, the most pressing issue is the imbalance between supply and demand. He suggested that the dairy industry could learn from the swine industry regarding capacity reduction.

The dairy industry has turned to powdered milk production to cope with the excess capacity. However, spray drying is a loss-making venture.

One ton of powdered milk sells for approximately 15,000-19,000 yuan, while production costs are about 35,000 yuan, resulting in a loss of over 10,000 yuan per ton. If stockpiles continue to build, the excess will have to be destroyed once it reaches its expiration date.

High inventory levels have caused a continuous decline in raw milk prices. According to AustAsia Group’s 2023 annual report, raw milk prices in December 2023 were about 11% lower than in December 2022, marking the largest year-over-year decrease in a decade.

In May 2024, the average milk price was 3.34 yuan per kilogram, 0.55 yuan lower than last year. For the first time, profitability per kilogram of milk has turned negative, with this adjustment cycle being harsher than the 2016-2017 period when over 80% of industry enterprises incurred losses.

Since May, after capacity adjustments mainly were completed, pork prices have continued to rise. Li Shengli recommended reducing the number of dairy cows in 2024, eliminating about 300,000 adult cows, and cutting milk production by 8,000 tons daily to decrease excess capacity significantly.

Currently, it is estimated that the daily capacity reduction in the first half of 2024 has led to a decrease in raw milk production by nearly 4,500 tons, and the capacity reduction is expected to continue.

In an interview with “Daily Economic News” on WeChat on July 3rd, Dairy analyst Song Liang emphasized the urgent need for top domestic dairy farms to reduce their cow herds by 15-20% to adjust supply in the short term.

Both large and small regional companies actively seek solutions, explore various cooperation formats, and look for products that meet market demand.

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