World dairy market prospects to improve on Chinese demand

Economic growth in China will support the global dairy market but the industry's upward path may not be smooth, according to the National Australia Bank (NAB).

 

China's dairy imports had already jumped by 45% in the year to April, spurred by growing affluence and rising urbanisation, which is associated with better-equipped supermarkets and a greater use of refrigerators.

 

"China continues to grow as an importer of whole milk powder, with increased urbanisation and rising protein consumption per capita," NAB commodities economist Ben Westmore said.

 

Demand for foreign milk in particular has been fuelled by a number of discoveries of contamination of domestic supplies by melamine.

 

However, the sector looked set to continue to be dogged by the swings which have seen prices double, halve and then double again within the last four years. "The regional disparity and lumpiness in the patter of the global economic recovery is likely to continue to be reflected in some volatility in dairy prices over the period ahead," Westmore said.

 

He attributed the market's price instability to the relatively small level of dairy output which was traded internationally, while saying current market strength was consistent with tight conditions fostered by Chinese demand at a time when EU and US farmers had cut back herds.

 

"Small changes in production or consumption of dairy products in the major dairying countries can lead to volatility in world dairy product prices," Westmore said.

 

China's dairy demand looked a fillip in particular for Australian and New Zealand milk industries, whose access to the market is supported by their relative geographic proximity. Currently, China has overtaken the US as New Zealand's second most export market, behind Australia.

 

New Zealand, the world's biggest dairy exporter, shipped more than NZD1 billion (US$667 million) of dairy products to China last year.