China's Dairy Sector Faces Surplus as Demand Declines
Source: DairyNews.today
China's dairy farms are grappling with an oversupply of milk as falling birth rates and a sluggish economy dampen demand. This surplus, driven by over-expansion in recent years, has pushed smaller farms out of business and is affecting the country's position as the world's top dairy importer.
The surplus reflects the unintended consequences of Beijing's food security strategy, which encouraged china-s-demand-for-dairy-remains-robust-but-is-set-for-a-transformation.html">the growth of the domestic dairy sector. While the government promoted dairy consumption and expansion, high production costs and the lingering effects of a 2008 milk adulteration scandal — resulting in the deaths of six children and hospitalization of thousands — have stunted export potential.
Weakening Consumer Demand
China's slowing economy and aging population have diminished demand for premium dairy products such as cheese, cream, and butter. Milk consumption per capita dropped to 12.4 kg in 2022, down from 14.4 kg in 2021, according to data from China's National Bureau of Statistics.
Despite this decline in demand, milk production surged to nearly 42 million tons in 2022, surpassing Beijing's 2025 production target of 41 million tons. This overproduction has caused a significant drop in milk prices, falling below the average production cost of 3.8 yuan ($0.54) per kg, leading to financial losses for dairy farmers across the country.
Many farms, struggling with losses, have been forced to shut down or reduce their herd sizes by selling cattle for beef—another sector facing oversupply issues. Major dairy producer Modern Dairy, for instance, reported a 50% reduction in its herd in the first half of 2023 and a net loss of 207 million yuan ($29 million).
Impact on Imports and Exports
Imports of dairy products into China, primarily from New Zealand, the Netherlands, and Germany, declined by 13% year-on-year to 1.75 million metric tons in the first eight months of 2023. Milk powder, the most imported dairy product, dropped 21% to 620,000 tons, according to China customs data.
Rabobank Research predicts that net dairy product import volumes will decrease by 12% in 2024 compared to the previous year, with the downcycle likely extending into 2025. The oversupply in China's dairy market is expected to continue impacting import volumes as local production remains robust despite falling demand.
Industry Overexpansion
China's dairy industry experienced rapid growth following the government's 2018 push for increased self-sufficiency in food production. Hundreds of thousands of Holstein cattle were imported to stock new farms, and dairy production rose sharply. However, alongside the slowing economy, the country's birth rate has also fallen, contributing to decreased demand for infant milk formula. In 2023, the birth rate hit a record low of 6.39 per 1,000 people, down from 12.43 in 2017, further straining the sector.
Feed
The rising cost of feed poses a particular challenge: China produces only 70% of the feed needed to raise cattle and sheep. Local authorities, according to a commentator in the Economic Daily, have restricted the planting of feed crops, misinterpreting China’s food safety laws to give priority to grain crops. Environmental regulations also complicate matters, with local authorities sometimes restricting livestock production to meet environmental requirements.
China’s oilseed crushing capacity is expected to rise to 137.3 million tonnes in 2024-25, up from 135.3 million tonnes in the previous period, according to the USDA’s FAS report. The growth is being driven by increased feed consumption and a recovery in demand for protein meals, particularly soybean meal.
The situation in China's meat sector
According to MARA, beef prices in China have fallen significantly over the past two years, with the average price as of September 2024 falling by 23% from January 2023, returning to 2019 levels.
Beef prices in China are out of step with international trends. While beef prices have risen in the US and remain low in Brazil, China's beef imports have increased by 65% since 2019. Despite lower domestic demand, beef imports from South America, which now account for three-quarters of China's total imports, continue to grow.
Weakening Consumer Demand
China's slowing economy and aging population have diminished demand for premium dairy products such as cheese, cream, and butter. Milk consumption per capita dropped to 12.4 kg in 2022, down from 14.4 kg in 2021, according to data from China's National Bureau of Statistics.
Despite this decline in demand, milk production surged to nearly 42 million tons in 2022, surpassing Beijing's 2025 production target of 41 million tons. This overproduction has caused a significant drop in milk prices, falling below the average production cost of 3.8 yuan ($0.54) per kg, leading to financial losses for dairy farmers across the country.
Many farms, struggling with losses, have been forced to shut down or reduce their herd sizes by selling cattle for beef—another sector facing oversupply issues. Major dairy producer Modern Dairy, for instance, reported a 50% reduction in its herd in the first half of 2023 and a net loss of 207 million yuan ($29 million).
Impact on Imports and Exports
Imports of dairy products into China, primarily from New Zealand, the Netherlands, and Germany, declined by 13% year-on-year to 1.75 million metric tons in the first eight months of 2023. Milk powder, the most imported dairy product, dropped 21% to 620,000 tons, according to China customs data.
Rabobank Research predicts that net dairy product import volumes will decrease by 12% in 2024 compared to the previous year, with the downcycle likely extending into 2025. The oversupply in China's dairy market is expected to continue impacting import volumes as local production remains robust despite falling demand.
Industry Overexpansion
China's dairy industry experienced rapid growth following the government's 2018 push for increased self-sufficiency in food production. Hundreds of thousands of Holstein cattle were imported to stock new farms, and dairy production rose sharply. However, alongside the slowing economy, the country's birth rate has also fallen, contributing to decreased demand for infant milk formula. In 2023, the birth rate hit a record low of 6.39 per 1,000 people, down from 12.43 in 2017, further straining the sector.
Feed
The rising cost of feed poses a particular challenge: China produces only 70% of the feed needed to raise cattle and sheep. Local authorities, according to a commentator in the Economic Daily, have restricted the planting of feed crops, misinterpreting China’s food safety laws to give priority to grain crops. Environmental regulations also complicate matters, with local authorities sometimes restricting livestock production to meet environmental requirements.
China’s oilseed crushing capacity is expected to rise to 137.3 million tonnes in 2024-25, up from 135.3 million tonnes in the previous period, according to the USDA’s FAS report. The growth is being driven by increased feed consumption and a recovery in demand for protein meals, particularly soybean meal.
The situation in China's meat sector
According to MARA, beef prices in China have fallen significantly over the past two years, with the average price as of September 2024 falling by 23% from January 2023, returning to 2019 levels.
Beef prices in China are out of step with international trends. While beef prices have risen in the US and remain low in Brazil, China's beef imports have increased by 65% since 2019. Despite lower domestic demand, beef imports from South America, which now account for three-quarters of China's total imports, continue to grow.
23.09.2024
Carbon emissions in global milk production - the elephant in the room
I have been thinking to make this post yes/ no. I decided for yes and like to ask everyone to not "shoot the messenger". The chart shows an analysis of IFCN Dairy Research Network from the 2024 supporter conference in Poland.
