Rising raw milk production, falling prices impact China’s dairy industry

CHINA – China’s raw milk production has seen an upward trajectory while pushing the official price down amid the continued development of large-scale dairy farms and decreasing feed prices, according to a market report.

Currently, the price stands at 3.23 RMB/kg of liquid milk, the lowest in 12 years since the Chinese government began publishing this figure. Prices have been declining for 18 consecutive months without any sign of relief.

China’s purchasing of foreign dairy commodities is reducing, and the demand for imported infant formula is impacted by a lower birth rate.

According to a market intelligence report from New Zealand’s Ministry for Foreign Affairs and Trade (MFAT), NZ infant formula exports to China in the four months to the end of April were valued at $410 million, nearly a 17% decrease from the same period last year.

This decline follows a high base in 2023 when NZ companies were quickly meeting China’s new infant formula registration requirements.

The increase in China’s total imports of infant formula from competitors shows they have now caught up. Trade data indicates a 31% reduction in China’s total imports of infant formula in the year ending April 2024.

The MFAT report attributes this drop to growing trust in local brands and China’s low birth rate. Government-sourced data reveals that China’s raw milk production grew by 1% in May, year-on-year, following a 2.3% growth in April.

High Ground Dairy senior manager Stu Davison noted that while the supply is still growing, the rate is slowing down.

However, the current raw milk price is below break-even, causing Chinese dairy farmers to lose money rapidly. Independent farmers, in particular, are struggling, while farms owned and operated by processors such as Mengniu and Yilli are faring better.

“Sentiment among Chinese farmers is very low, with reports that they are culling cows and trying to feed lower-cost diets to stem their losses,” Davison said.

Due to reliance on mostly imported feeds such as hay and corn from the United States, the high cost of dairy production in China necessitates a higher local milk price to support production costs. The significantly reduced raw milk price of 3.23 RMB is about NZ$9/kg milk solids.

Data sources agree that production has grown significantly over the past four years, with possible increases of 8.6% in 2022 and 2.9% in 2023, though there is some variation in numbers.

According to RaboResearch global dairy strategist Mary Ledman in Chicago, dairy self-sufficiency has increased from 70% to 85% over the past four years.

With these low farmgate milk prices, China could quickly become a major dairy exporter, shifting international trade dynamics, warned Fabrizio Jorge, Beston Global Food Co CEO in Melbourne.

Regarding infant formula demand, Davison noted the growing acceptance of local products alongside a push for “Breast is Best” in China, mirroring trends in other nations. New labeling requirements have also affected the infant formula market, creating variability in the data.

New Zealand supplied 27.6% of the import market year-to-date in April 2024, compared to 34% from the Netherlands.

The new regulations have impacted European products harder than New Zealand’s, with imports from the Netherlands and France down 50% year-to-date, Ireland down 25%, and New Zealand down 20%. Nearly 60% of New Zealand’s infant formula exports go to China.

“The free trade agreement should support NZ products having the upper hand over European products,” Davison said.

“We are seeing the same trend for other dairy products. Even though China is importing less dairy overall, which is definitely impacting dairy prices, NZ is claiming a larger market share. The FTA makes NZ products more attractive, as they are cheaper than paying the extra tariff for EU products.”