China Faces 42 Million Tonne Milk Surplus Amid Declining Demand

Despite these efforts, the demand for dairy products has not met expectations. Per capita consumption dropped from 14.4 kg in 2021 to 12.4 kg in 2022, influenced by a declining birth rate, an aging population, and a weaker economy. These factors have reduced the market for baby formula and led to more cost-conscious consumer behavior, impacting the sales of higher-priced dairy products like cheese and butter.

The supply-demand mismatch has led to a collapse in raw milk prices, which in 2022 fell below the average production cost of 3.8 yuan per kg. This price drop has strained domestic producers, with many smaller farms facing financial losses, downsizing, or shutting down. One major Chinese dairy producer halved its herd in a year, illustrating the widespread financial distress in the sector.

Export options for the surplus milk are limited due to high production costs and market hesitance following past scandals, such as the 2008 melamine incident. Consequently, some farms have resorted to dumping milk to avoid the costs of processing and distribution. This situation also suggests that China's demand for imported commodities like fluid milk and milk powder may decrease, potentially affecting global dairy trade dynamics.