Despite the corona crisis, dairy consumption in China continues to rise this year. At the same time, milk production is also on its way to a new record. What does this mean for European export opportunities?
The Chinese milk pool will grow by 3% this year to a record size of 34,500 million tons, the US Department of Agriculture (USDA) estimates. This is higher than previously forecast. The growth is due to the fact that the larger Chinese dairy farms with more than 100 cows are accelerating. They now account for 65% of production. The number of dairy cows is said to increase by 500.000 to 61,5 million. The average milk yield per cow will probably increase from 7.800 to 8.000 kilos.
Stimulate milk prices and subsidies
The higher milk price is encouraging. This has been at the highest level since at least 2015 all year long, according to figures from the Chinese Ministry of Agriculture. At the beginning of May, the milk price was €0,45 per kilo, an excellent milk price by European standards. What also stimulates production is the support program of local Chinese governments in provinces with many dairy cattle. Last year, €250 million was pumped into the sector and subsidy funds will also be available in 2020 and subsequent years.
The aim of this is to further professionalise dairy farming. Although it is not literally said, China wants to polish the image of its own dairy farming. Chinese consumers are widely known to prefer consuming overseas dairy products due to higher food safety standards.
China also appears to be working to hinder foreign dairy imports. In February, CEO Hein Schumacher indicated that it is becoming increasingly difficult for FrieslandCampina to gain a foothold in China. Chinese state-owned dairy companies are being helped through legislation. The long-term consequences of this remain to be seen.
Imports are increasing
For the time being, China remains dependent on Europe, the United States and New Zealand for dairy imports. Our own production is not sufficient to meet the consumption that has been growing for years. On paper, the dairy deficit is 910.000 tons. The USDA expects dairy imports to reach 930.000 this year. This is a slight increase compared to 2019 when import volumes increased by as much as 32%.
This rapid growth was due to the fact that many Chinese consumed more dairy due to a shortage of pork. The corona crisis that gripped almost all of China in the first quarter is not putting a brake on dairy consumption. Average consumption will increase by just under 2 kilos to 35 kilos and will continue to increase in the following years to 43 kilos in 2025. This is because many Chinese adopt Western (eating) habits. Without the outbreak of the coronavirus, consumption would have risen even faster this year.
American competition
During the corona crisis, extra milk was processed into whole milk powder in China. According to the USDA, it is not certain whether China will also import more milk powder this year, as there is probably a lot of demand for UHT milk. This year it will certainly be a battle again between European exporters and the competition in New Zealand and the United States.
The American competitive position has improved considerably now that the trade war has been settled, although there are still rumblings between the two superpowers. The New Zealand dairy cooperative Fonterra is doing well in this year's 'competition'. In March, sales in China were more than 20.000 tons higher (+10%) compared to last year. Dutch exporters report that sales to China are increasing, but are not yet at the old level.