September 27, 2012

China dairy firms affected by imports in milk powder industry

China's dairy firms are losing bargaining power as the milk powder industry has been dominated by product imports.

Data shows that the price of domestic milk powder is about CNY30,000 (US$4,755) per tonne, while the price for imported one is only CNY22,500 (US$3,566) per tonne. Imported milk powders are pouring into Chinese market with the relative low price that by the end of August, the imported amount has exceeded 400,000 tonnes and is expected to exceed 600,000 tonnes in the whole 2012, according to Wang Dingjin, an expert in dairy industry.

With the price inversion since early 2012, domestic raw milk powder manufacturers suffered with losses together. Major raw milk powder manufacturers in Northeast China such as Wondersun, Bright Dairy and Feihe Dairy began to limit raw milk purchasing, resulting in the raw milk unsalable. Many dairy farmers have to sell out or even cull their dairy cows to leave the market.

Northeast China is the major milk powder producing area in China, the annul output in which accounts for 70% to 80% of the total output in China.

Despite of the price decline in imported raw milk powder, foreign infant formula powder brands are continuously rising in prices for the Chinese market. By contrast, China's milk powder industry, which is over-shadowed by safety scandals these days, are losing trust of Chinese consumers as well as bargaining power in the market.

Furthermore, the raw milk powder output in New Zealand has increased by 8% to 9% (about 350,000 tonnes). The abundant supply makes it very possible for New Zealand to export milk powders at a low price, said Wang Dingjing.

China has always been encouraging import of agricultural products. As a result, China would not restrict import currently though domestic milk powder industry has suffered with difficulties, said Song Liang, an analyst in dairy industry.

Now many milk powder manufacturers are calling help from Chinese government through China Dairy Industry Association for policy supports.

China's Ministry of Commerce has begun to investigate in this problem.