Chinese hunger for dairy still far from satisfied

China is by far the largest importer of milk powders and the hunger for dairy is far from satisfied. The Chinese will also continue to import dairy products in the coming years.

It is striking that the number of Chinese dairy cows is declining by hundreds of thousands at the same time. With the trade war between the United States (US) and China, this means plenty of opportunities for Dutch dairy exporters.

Huge potential
When every Chinese (more than 1,3 billion) drinks 1 glass of milk daily, low milk prices will be a thing of the past. At least this is sometimes said simplistically. However, it is not there yet. In the coming years, China will dairy products import. The United States Department of Agriculture (USDA) foresees an additional import of whole milk powder from 2019% to 15 tons for 600.000.

Demand for skimmed milk powder is also increasing (+11% to 305.000 tons), China is going more whey powder imports and the import of liquid milk products is expected to increase by 13% to 850.000 tons. USDA forecasts are realistic, as Chinese imports rose in the same order of magnitude in 2018.

In addition, imports are also likely to increase in the long run; There are various forecasts that state that Chinese dairy consumption will triple by 2050.

Hundreds of thousands of cows slaughtered 
The growing demand is partly a result of increasing prosperity and urbanization in China. At the same time, the number of dairy cows is declining rapidly. China still had 2017 million dairy cows in 7,2, but this year there were only 6,6 million and that will probably fall to about 6,3 million next year. Due to the fact that the milk yield per cow is increasing, the Chinese milk supply will shrink 'only' by 1% next year to 34,7 million tons.

The decrease in the number of dairy cows is largely due to the low milk prices. As a result, the (small) dairy farmers have given up on it, partly because environmental regulations are becoming increasingly strict. Another reason for the rapid decline is that dairy cows have been in demand at the Chinese slaughterhouses in recent months, due to a lack of beef cattle. This gave stoppers an extra incentive to take the plunge.

The low price is due to competition from foreign products on the Chinese market. The consumers in China attach great importance to food safety and are often convinced of the quality of overseas products. Despite rising consumption and declining production, the Chinese milk price will continue to be under pressure in 2019.

Profit from trade war?
The European Union (including Germany, France, the Netherlands and Poland), the US, New Zealand and Australia are China's main suppliers of dairy. In addition, the US and China have become embroiled in a trade war, with American dairy having to pay for it. China therefore applies a 25% tax on American milk powder, cream, butter and cheese.

The USDA fears that the US dairy sector will not, or only partially, benefit from China's appetite for dairy as a result. As long as the trade war continues, other countries have an advantage. Although there are rumors that the trade war may be settled in the near term; the countries seem to be working on a glue attempt. If that is the case, this could benefit the American export position and possibly create a level playing field again. 

In addition, the value of the euro will determine whether European dairy will gain ground in China. Currently, the euro relatively weak against the dollar, which benefits the European export position. Of course, this could change again in mid-2019.

Apart from an advantage from the trade war, the expected increase in Chinese imports may provide support for European milk prices; especially now the supply what has sounded. In contrast, the milk supply increases in New Zealand which has traditionally been by far the largest supplier of whole and skimmed milk powder in China.

whey powder
For the Netherlands, the Chinese demand for whey powders is of great importance. The US was the main supplier of whey powder in 2017, with a market share of more than 50% at over 120.000 tons. In second and third place, France and the Netherlands follow with a market share of 2% and 3% respectively. With regard to whey powder, Europe has less to fear from competition from Oceania.

If the trade war continues, Dutch exporters of whey powder probably wouldn't be bad, although the outlook for dairy exports in China seems to be pretty good anyway.

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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