More milk in China. How does dairy export react?

The milk price in China has been above 3,60 renminbi per kilo throughout the year. Converted this is a price level of €0,47 per kilo. Although China generally has high milk prices, the level at this time of year has never been as high as it is now. Moreover, the expectations for the coming months are good.

The fact that the high milk price is driving up production is only a logical consequence. The US Department of Agriculture (USDA) expects production to increase by 2,5% this year to 33 million tons. This means that the Chinese milk lake shows growth figures for the first time in 4 years. The expected increase in production is also the result of the rapid professionalization that the sector is experiencing.

6,25 million dairy cows
According to the USDA, the number of dairy farms (with fewer than 300 cows) has halved to 2011 between 56.000 and now. The number of large-scale dairy farms, on the other hand, is increasing rapidly. China has very large companies that sometimes milk hundreds of thousands of cows at multiple locations.

This drives up milk production, as these farms generally apply good (feed) management. This also explains that the number of dairy cows increases less rapidly than milk production. After years of contraction, the Chinese dairy herd is reported to grow by 2019% to 0,8 million in 6,25. In addition, China has millions of milking buffalo, sheep and goats.

The sector is particularly well represented in the north of China. However, the center of gravity of dairy consumption is precisely in the south. This means that a relatively large amount of milk powder is consumed there and that offers opportunities for European dairy exporters. It is known that Chinese consumers have more confidence in imported dairy products in the context of food safety.

The USDA estimates the growth of dairy consumption in China at around 2,5% to 33,7 million tons, as a result of increasing prosperity and urbanization. The average consumption of 18 kilos in 2007 to 36 kilos in 2018. However, this is still relatively low compared to other countries, which means that the market still has enormous growth potential. Dairy is still relatively expensive for Chinese consumers and also has a modest place in the consumption pattern.

Import records in the making
On balance, China remains dependent on imports, which offers opportunities for (European) dairy exporters. The USDA estimates that liquid dairy imports will increase by 4% this year to 700.000 tons. About half of this comes from the European Union and the other half comes from New Zealand (35%) and Australia (12%). The import of skimmed and whole milk powder is also increasing, but that supply comes largely from New Zealand and Australia.

Chinese cheese imports are heading for a record 119.000 tons. Imports have been showing growth for years, but again experienced a small setback in 2018. Considering the United States and China a trade war fight it out, New Zealand and the European Union will benefit even more from the Chinese buying impulse.