China: Excess Milk Production Capacity Reaches 2 Million Tons
Source: The DairyNews
On July 3rd, the 15th China Dairy Conference was held in Wuhan. During the conference, Yu Kangzhen, a consultant to the State Council and former Deputy Minister of Agriculture and Rural Affairs, stated that China's dairy industry is currently facing its most significant challenges since 2008.
One of the key points highlighted at the conference was the necessity to produce products that are closely aligned with consumer demands. This includes various flavored dairy products and items suitable for those on diets. Conference participants also saw high potential in the segment of milk tea and coffee.
The most pressing issue, according to conference attendees, is addressing the imbalance between supply and demand. Experts believe that the dairy industry could learn from the swine industry regarding capacity reduction.
Yu Kangzhen noted that China's dairy industry is facing serious challenges, including low dairy product consumption and an oversupply of raw milk.
According to the National Bureau of Statistics, milk production in China reached 41.97 million tons in 2023, an increase of 6.7%. The Ministry of Agriculture and Rural Affairs' "14th Five-Year Plan to Enhance the Competitiveness of Dairy Products" set a target of 41 million tons by 2025, a goal that the industry achieved two years ahead of schedule.
The rapid production growth has led to excess capacity in the industry. Li Shengli, Chief Scientist of the National Dairy Industry Technology System and Vice President of the China Dairy Association, shared research data indicating that the surplus of raw milk exceeded 2 million tons in 2023.
To cope with the excess capacity, dairy companies have increased the production of powdered milk. Li Shengli stated that from April to May 2024, leading dairy companies processed an average of 20,000 tons of raw milk into powder daily, accounting for about 25% of the total collected milk.
Spray drying is actually a loss-making business for dairy companies. According to Li Shengli, one ton of powdered milk sells for approximately 15,000-19,000 yuan, but the production cost of one ton is about 35,000 yuan, leading to a loss of over 10,000 yuan per ton of powdered milk sold.
If stockpiles continue to build up, the excess will have to be destroyed once it reaches its expiration date.
High inventory levels have led to a continuous decline in raw milk prices. According to the 2023 annual report of AustAsia Group, raw milk prices in December 2023 were about 11% lower than in December 2022, marking the largest year-over-year decrease in raw milk prices in the past decade.
In May 2024, the average milk price was 3.34 yuan per kilogram, 0.55 yuan lower than the same period last year.
For the first time in the system's history, the profitability per kilogram of milk has turned negative. The current adjustment cycle is harsher than the period from 2016 to 2017 when over 80% of industry enterprises incurred losses.
On February 29th, the Ministry of Agriculture and Rural Affairs of China published the "Implementation Plan for Pig Production Control Measures (2024 Revision)," suggesting large pig farming enterprises reasonably reduce production capacity. Since May, when the adjustment of production capacity was mostly completed, pork prices have continued to rise.
Li Shengli recommended appropriately reducing the number of dairy cows in 2024, eliminating about 300,000 adult cows and reducing milk production by 8,000 tons per day to significantly decrease excess capacity. Currently, it is estimated that the daily reduction in capacity in the first half of 2024 has led to a decrease in raw milk production by nearly 4,500 tons, and the capacity reduction is expected to continue for some time.
"Domestic dairy farms in the top twenty should actively reduce their dairy cow herds by 15-20%," said dairy analyst Song Liang in an interview with "Daily Economic News" on WeChat on July 3rd, emphasizing the urgent need to adjust supply in the short term.
Meanwhile, both large giants and regional small and medium-sized companies are actively seeking solutions, exploring various cooperation formats, and looking for market-demanded products.
The most pressing issue, according to conference attendees, is addressing the imbalance between supply and demand. Experts believe that the dairy industry could learn from the swine industry regarding capacity reduction.
Yu Kangzhen noted that China's dairy industry is facing serious challenges, including low dairy product consumption and an oversupply of raw milk.
According to the National Bureau of Statistics, milk production in China reached 41.97 million tons in 2023, an increase of 6.7%. The Ministry of Agriculture and Rural Affairs' "14th Five-Year Plan to Enhance the Competitiveness of Dairy Products" set a target of 41 million tons by 2025, a goal that the industry achieved two years ahead of schedule.
The rapid production growth has led to excess capacity in the industry. Li Shengli, Chief Scientist of the National Dairy Industry Technology System and Vice President of the China Dairy Association, shared research data indicating that the surplus of raw milk exceeded 2 million tons in 2023.
To cope with the excess capacity, dairy companies have increased the production of powdered milk. Li Shengli stated that from April to May 2024, leading dairy companies processed an average of 20,000 tons of raw milk into powder daily, accounting for about 25% of the total collected milk.
Spray drying is actually a loss-making business for dairy companies. According to Li Shengli, one ton of powdered milk sells for approximately 15,000-19,000 yuan, but the production cost of one ton is about 35,000 yuan, leading to a loss of over 10,000 yuan per ton of powdered milk sold.
If stockpiles continue to build up, the excess will have to be destroyed once it reaches its expiration date.
High inventory levels have led to a continuous decline in raw milk prices. According to the 2023 annual report of AustAsia Group, raw milk prices in December 2023 were about 11% lower than in December 2022, marking the largest year-over-year decrease in raw milk prices in the past decade.
In May 2024, the average milk price was 3.34 yuan per kilogram, 0.55 yuan lower than the same period last year.
For the first time in the system's history, the profitability per kilogram of milk has turned negative. The current adjustment cycle is harsher than the period from 2016 to 2017 when over 80% of industry enterprises incurred losses.
On February 29th, the Ministry of Agriculture and Rural Affairs of China published the "Implementation Plan for Pig Production Control Measures (2024 Revision)," suggesting large pig farming enterprises reasonably reduce production capacity. Since May, when the adjustment of production capacity was mostly completed, pork prices have continued to rise.
Li Shengli recommended appropriately reducing the number of dairy cows in 2024, eliminating about 300,000 adult cows and reducing milk production by 8,000 tons per day to significantly decrease excess capacity. Currently, it is estimated that the daily reduction in capacity in the first half of 2024 has led to a decrease in raw milk production by nearly 4,500 tons, and the capacity reduction is expected to continue for some time.
"Domestic dairy farms in the top twenty should actively reduce their dairy cow herds by 15-20%," said dairy analyst Song Liang in an interview with "Daily Economic News" on WeChat on July 3rd, emphasizing the urgent need to adjust supply in the short term.
Meanwhile, both large giants and regional small and medium-sized companies are actively seeking solutions, exploring various cooperation formats, and looking for market-demanded products.
23.09.2024
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