China Targets EU Dairy Amid Struggles in Its Own Industry
Source: DairyNews.today
China’s recent anti-subsidy investigation into dairy imports from the European Union comes at a time when its domestic dairy industry is facing severe challenges.
While limiting shipments from the EU could offer some relief to struggling Chinese farmers, the scope of the action is small, and the root problems plaguing the local industry have been building for years. Overcapacity, falling demand, and a slowing economy are exerting pressure on the sector, particularly on higher-priced dairy products.
China’s dairy market is grappling with the most significant difficulties since the 2008 melamine scandal, which severely damaged the industry's reputation. According to Gao Fei, CEO of China Mengniu Dairy Co., the sector is experiencing its most severe crisis in over a decade. Despite years of growth, milk consumption remains relatively new in China, and dairy products like cheese are still considered luxuries by many.
However, the industry’s expansion has come to a halt. Milk prices have been declining for over two years, with nearly 80% of dairy farmers operating at a loss. Excess production and a weakened economy have forced farmers to cull more cows than usual, and producers are seeking new demand avenues, including increasing cheese production and exploring export markets.
In this context, curbing EU dairy imports makes strategic sense. The EU is China’s second-largest foreign dairy supplier, following New Zealand. However, China’s measures will only affect around 16% of the EU’s dairy exports to China, equating to roughly 4% of total dairy imports. Additionally, China’s dairy imports were already declining, falling by 14% in the first seven months of 2024, while exports surged by 27%.
China’s long-term strategy has been to boost domestic dairy production and reduce reliance on imports, leading to overinvestment in capacity. As consumption stagnates and the economy struggles, this overproduction has created a massive surplus, forcing both domestic and international reassessments of the Chinese dairy market.
While the anti-subsidy measures are currently limited, concerns are rising that China could impose further restrictions on EU dairy products. Such actions may have a more significant impact on trade than initially intended, heightening tensions in an already complex global dairy market.
For European dairy firms like Arla Foods, China’s evolving market dynamics have led to a recalibration of their business strategies. Arla CEO Peder Tuborgh recently acknowledged that China has become less of a priority market for the company. Meanwhile, other companies that once targeted the Chinese market are pivoting, selling Chinese-produced dairy to emerging markets such as Pakistan and Nigeria.
As China’s dairy industry faces mounting challenges, the ongoing tensions with the EU and broader global market uncertainties are likely to shape the future of both domestic and international dairy trade.
China’s dairy market is grappling with the most significant difficulties since the 2008 melamine scandal, which severely damaged the industry's reputation. According to Gao Fei, CEO of China Mengniu Dairy Co., the sector is experiencing its most severe crisis in over a decade. Despite years of growth, milk consumption remains relatively new in China, and dairy products like cheese are still considered luxuries by many.
However, the industry’s expansion has come to a halt. Milk prices have been declining for over two years, with nearly 80% of dairy farmers operating at a loss. Excess production and a weakened economy have forced farmers to cull more cows than usual, and producers are seeking new demand avenues, including increasing cheese production and exploring export markets.
In this context, curbing EU dairy imports makes strategic sense. The EU is China’s second-largest foreign dairy supplier, following New Zealand. However, China’s measures will only affect around 16% of the EU’s dairy exports to China, equating to roughly 4% of total dairy imports. Additionally, China’s dairy imports were already declining, falling by 14% in the first seven months of 2024, while exports surged by 27%.
China’s long-term strategy has been to boost domestic dairy production and reduce reliance on imports, leading to overinvestment in capacity. As consumption stagnates and the economy struggles, this overproduction has created a massive surplus, forcing both domestic and international reassessments of the Chinese dairy market.
While the anti-subsidy measures are currently limited, concerns are rising that China could impose further restrictions on EU dairy products. Such actions may have a more significant impact on trade than initially intended, heightening tensions in an already complex global dairy market.
For European dairy firms like Arla Foods, China’s evolving market dynamics have led to a recalibration of their business strategies. Arla CEO Peder Tuborgh recently acknowledged that China has become less of a priority market for the company. Meanwhile, other companies that once targeted the Chinese market are pivoting, selling Chinese-produced dairy to emerging markets such as Pakistan and Nigeria.
As China’s dairy industry faces mounting challenges, the ongoing tensions with the EU and broader global market uncertainties are likely to shape the future of both domestic and international dairy trade.
