CHINA – China’s dairy industry is experiencing an unprecedented surplus, driven by falling demand, shrinking birth rates, and consumers tightening their belts, Rabobank reports.
Despite years of expansion fueled by government initiatives aimed at food security, the sector now faces overproduction, pushing smaller farmers out of business and limiting export opportunities due to lingering reputational damage from past scandals.
Milk consumption in China has significantly declined, dropping from 14.4 kg per capita in 2021 to 12.4 kg in 2022, according to official data.
This decrease is attributed to several factors, including a slowing economy and an aging population. Meanwhile, the country’s milk output surged to nearly 42 million tons in 2022, far exceeding Beijing’s 2025 production target of 41 million tons.
As a result, milk prices have fallen below production costs, leading to closures of dairy farms and herds being downsized as farmers resort to selling cattle for beef, which has also become an oversupplied market.
Dairy imports plummet 13%, as consumption habits fail to shift
The challenges facing the industry are also compounded by the decline in dairy product imports.
In the first eight months of 2024, China’s dairy imports dropped 13% year-on-year to 1.75 million metric tons.
According to Rabobank, milk powder— China’s top dairy import—plummeted by 21%.
The report predicts that net dairy product imports will continue to decline in 2024 and 2025 as the market adjusts to the ongoing downcycle.
China’s dairy sector rapidly expanded after Beijing’s 2018 push for increased food self-sufficiency, resulting in the proliferation of farms and the importation of hundreds of thousands of Holstein cattle.
However, the country’s record-low birth rates have dampened the demand for infant formula, a key driver of the industry’s growth.
A2 Milk, a New Zealand-based company that sells infant formula in China, reported that the country’s infant formula market shrank by 8.6% in volume and 10.7% in value during the fiscal year ending in June 2024.
The trend is expected to continue into 2025.
Efforts to shift consumer habits from “drinking milk” to “eating milk”—encouraging the consumption of value-added dairy products like cheese, butter, and cream—have struggled.
Chinese consumers, wary of economic uncertainty, have shown little interest in premium dairy products, opting instead for cheaper alternatives.
This has left China’s dairy processors scrambling to manage excess production by converting surplus milk into powder, which reached over 300,000 tons by mid-2024, double the previous year’s level.
While Chinese producers are seeking export markets for this surplus, lingering distrust from the 2008 milk adulteration scandal, which caused the deaths of six children and sickened thousands more, hampers international sales.
Despite improvements in food safety regulations, many Chinese consumers and overseas buyers still prefer foreign dairy brands.
China exported just 55,100 tons of dairy products in the first half of 2024, up 8.9% from the previous year but still a small fraction of its surplus.
High costs hamper sector, but there is hope in future
High production costs continue to burden China’s dairy sector.
Reliance on costly animal feed keeps production expenses almost double those of New Zealand, the world’s top dairy exporter, where cows graze in natural pastures.
Although China has taken steps to limit dairy imports from the European Union as part of a trade dispute, analysts argue that such measures provide only temporary relief and fail to address deeper structural issues like overproduction and stagnating demand.
Despite these challenges, industry experts still see potential for growth in China’s dairy market.
For instance, Dairy Australia continues to view China as a major market for cheese, projecting future expansion in this segment.
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