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China's dairy self-sufficiency disrupts global trade dynamics, - Rabobank

China 18.06.2024
Source: The DairyNews
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China’s growing self-sufficiency in dairy production is reshaping the global dairy trade, prompting New Zealand to seek new markets for its whole milk powder (WMP) exports. This shift has intensified competition among dairy-exporting regions and driven milk powder prices below average levels.
China's dairy self-sufficiency disrupts global trade dynamics, - Rabobank

From 2018 to 2023, China achieved a remarkable increase in domestic milk production, reaching an additional 11 million metric tons. This surge led to a significant drop in China's WMP imports, falling from an average of 670,000 metric tonnes annually between 2018 and 2022 to just 430,000 metric tonnes in 2023.

Mary Ledman, a global strategist for dairy at Rabobank, likens the global dairy sector to a series of dominoes, with China’s demand being the first domino. "If China’s demand falls, it triggers a chain reaction, causing each subsequent domino to topple. This has intensified competition among existing dairy-exporting regions and led to lower-than-average global milk powder prices," explains Ledman.

New Zealand's Strategic Shift

New Zealand, which contributes less than 3% to global cow milk production but accounts for over 25% of global dairy trade, has been significantly impacted. As China reduced its WMP imports, New Zealand needed to find alternative markets for nearly 150,000 metric tons of WMP. This represents almost 1.3 million metric tonnes of milk, or 6% of New Zealand’s annual milk production, now redirected to other forms such as WMP, skim milk powder (SMP), milkfat, and cheese.

New Zealand’s WMP exports peaked in 2021 due to high Chinese demand but declined in subsequent years. In response, New Zealand diversified its export strategy, increasing exports of SMP, butterfat, and cheese to compensate for a 255,000 metric ton decrease in WMP exports between 2021 and 2023.

In 2022 and 2023, New Zealand expanded its WMP exports to Algeria, the world’s second-largest WMP importer. This move affected the European market, traditionally a supplier of WMP and SMP to Algeria. Additionally, New Zealand shifted milk from WMP to SMP, resulting in a nearly 40% increase in SMP exports from 2021 to 2023, putting pressure on SMP exports from the EU and the US.

Challenges and Opportunities

China’s increased dairy production presents opportunities for companies involved in animal health, genetics, nutrition, manure management, and dairy processing equipment. While it is unlikely that China will become a net dairy exporter, its self-sufficiency poses a significant challenge to key dairy-exporting regions that rely heavily on the Chinese market.

Ledman notes that while production costs will influence competitiveness, shorter supply chains and increased trade protectionism could mitigate these costs. "China’s increased self-sufficiency may serve as an example for other countries aiming to reduce reliance on trade," she adds.

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