October 1, 2018
Asian dairy supply, demand and imports
Asian dairy is sharply divided by product and region. China and Southeast Asia drive world dairy imports of value-added goods. South Asia is a large stand-alone market that will import capital goods in place of dairy products.
By Eric J. Brooks
An eFeedLink Hot Topic
Consuming an FAO estimated 300 million tonnes of dairy products today, Asia is the world's fastest growing dairy market and is expected to grow to 320 million tonnes by 2021, with much of this consumption imported. At the same time, whether measured in aggregate volume or value-added terms, Asian dairy production and consumption are highly diverse.
Producing a world-leading 165 million tonnes of fluid milk this year and self-sufficient in dairy goods, India singlehandedly accounts for half of Asian dairy demand, with China making up another 13%. While the Indian subcontinent appears to dominate dairy supply and consumption volumes, an entirely different picture emerges when value-added revenue, product differentiation and world market integration are taken into account.
Across Asia, dairy consumption varies as widely as culture and income levels. Low income and with unreliable official statistics, Cambodian and Laotian per capita dairy consumption is estimated somewhere between 2kg and 5kg in milk equivalent (ME) terms. Further along the economic development curve, Indonesians consume 10.3kg ME in dairy products.
Due to their higher incomes, government-sponsored milk drinking campaigns and historical contact with western milk drinking traditions Vietnam (15kg ME) and the Philippines (17.9kg ME) higher consumption. While China (23.2g ME) was able to leverage rapid income growth into a higher per capita income and milk consumption levels than what is found in Southeast Asia, its consumption still trails that of developed Asian nations such as Japan (66.1kg ME) and South Korea (63.2kg ME).
Superficially, India (53.3kg) gives the impression of being an exception to the rule: A developing country with a fraction of China's per capita income but a per capita dairy consumption level closest to that of wealthy Japan or South Korea.
–In truth, 49.3kg or 91.4% of Indian dairy consumption is accounted for by fluid milk alone. That means that Indians only consume 4.6kg of processed dairy goods annually, of which 4.03kg or 88% is accounted for by butter. By comparison, the Chinese 55% or 12.7kg per capita of China's annual dairy consumption consists of processed dairy goods. Hence, while dairy consumption is not part of traditional Chinese culture and they consume less in aggregate terms, on a product or value-added basis, China is a more important market than India.
It also means that the 3.2 billion people in India, China and Southeast Asia must multiply their overall consumption of dairy goods by several times over the next few decades to achieve consumption levels taken for granted in Japan and South Korea, whose own per capita consumption continues to grow. Even then, they would be consuming only a fraction of the 250kg to 300kg ME of per capita dairy product consumption taken for granted in Europe and North America.
Alongside the inevitability of population growth and multiplying per capita consumption, high population densities and a lack of arable land constrain Asia Pacific dairy supplies. Unsurprisingly, Asian fluid milk production cannot keep up with demand, thereby causing this region to account for a large and ever-growing share of world dairy imports.
On one hand, depending on the developing Asian country in question, everything from commodity milk powders to high-value whey, butter, yogurt, and cheeses rises by anywhere from 4% to 10% annually. On the other hand, the USDA reports that in 2017, Asian fluid milk production only increased by 1.9%. A 3.8% increase in Indian fluid milk production (which barely kept up with dairy processing demand) was offset by flat or falling East Asian production. China, which accounts for approximately 80% of East Asian fluid milk output, produced only 1.7% more milk in 2017 than it did in 2007.
While imports are growing aggressively across Asia Pacific, the type of dairy goods experiencing rapid growth and their quantity of import varies greatly across this diverse continent. Japan and South Korea, which dominated Asian dairy imports twenty years ago, have been reduced to a minority of the region's imports for most product lines. China and Southeast Asia have eclipsed them in market importance while importing products which wealthier East Asian nations never did.
For example, whereas Japan and South Korea are self-sufficient in milk, China's fluid milk imports rose from a few thousand tonnes twenty years ago to 13,000 tonnes in 2009, the year after the melamine contamination scandal broke. This grew to 320,000 tonnes by 2014 and a USDA projected 750,000 tonnes this year.
Even more short of dairy feed inputs than China, Southeast Asia's fluid milk imports experienced similar, though slightly more subdued growth. From an FAO estimated 57,000 tonnes in 2000 to 157,000 tonnes in 2014, when the world dairy market peaked. They then continue to grow to an FAO estimated 194,000 tonnes in 2016 and over 230,000 tonnes this year. Hence, from around 25% of world dairy imports in 2000, China and Southeast Asia will buy around three-quarters of the world's 2018 fluid milk imports.
The past two decades have seen China and Southeast Asia achieve a similar, though segmented dominance over milk powder imports. China's WMP imports skyrocketed from 51,000 tonnes in 2000 to 671,000 tonnes in 2014, before slumping back to 347,000 tonnes a year later. China's 500,000 tonnes 2018 import volume is below its pre-crash record, its share of world WMP imports has jumped from 8% in 2000 to nearly 47% this year and is expected to exceed 50% before 2020.
Similarly, Southeast Asia has gone from importing an FAO estimated 375,000 tonnes of SMP in 1999 to 683,000 tonnes in 2016 and an estimated 733,000 tonnes this year, which now accounts for over half of world SMP purchases.
Whereas WMP and SMP drove Asia's dairy trade prior to 2014, the past five years have seen Asia's imports of these lower end dairy commodities level off. This is particularly true of WMP, where faltering Chinese demand has seen world imports fall from 1.21 million tonnes in 2014 to 1.05 million tonnes this year. SMP fared better, growing by 20.6% from 1.178 million tonnes in 20154 to 1.421 million tonnes in 2018, as Chinese demand rebounded to previous levels and Southeast Asian imports kept growing. Even so, it was slower than the 35% in world SMP imports during the previous four years.
On the other hand, world fluid milk imports went from rising barely 1.2% annually from 2000 (238,000 tonnes) to 2008 (263,000 tonnes) to rising 381% over the past ten years, to a USDA estimated 1.267 million tonnes in 2018. Here too, the story is driven by China and Southeast Asia.
ASEAN fluid milk imports roughly double every ten years, from 57,000 tonnes in 2000 to 102,000 in 2008 to 231,000 tonnes this year. China's thirst for imported milk grew even more rapidly, from under 10,000 tonnes in the early 2000s to 16,000 tonnes by 2010 and a USDA estimated 750,000 tonnes in 2018.
Chinese and Southeast Asian thirst for foreign milk was only rivaled by its demand for fattier, processed dairy goods. From 33% of world cheese imports in 1999, China, Taiwan, Japan, South Korea and Southeast Asia will account for 57.5% this year. But unlike fluid milk or milk powder, China and Southeast Asia do not dominate world cheese markets in the same way or to the same extent.
Since the late 2000s, China and Southeast Asia did not become merely "catch up" to the rapid cheese import growth already underway in Japan and South Korea. Despite having only a tenth of China's population, Japan still imports twice as much cheese and will continue importing more until at least around 2030.
Similarly, Southeast Asia's 600 million people import as much cheese as South Korea's 50 million people but don't overtake it. Both imported a little over 30,000 tonnes of cheese in 2000. By 2010, South Korea was importing 61,000 tonnes of cheese annually; Southeast Asia 41,000 tonnes.
In this decade, lower income Asian countries' import demand for fattier high-end dairy goods took off. Whereas South Korean cheese import volumes will have doubled in eight years to 125,000 tonnes, Southeast Asia's foreign cheese purchases will have tripled, to 120,000 tonnes.
But the greatest cheese import growth is in fast food crazy China. It went from importing under 5,000 tonnes of cheese in 2000 and a little over 30,000 tonnes in 2011 to 108,000 tonnes in 2017 and a projected 140,000 tonnes this year.
Perhaps the most interesting symptom of rising Asian influence however, is in the world market for butter. On one hand, at 305,000 tonnes, the USDA's estimate for world butter imports is barely higher than the 303,000 tonnes shipped in 2000. On the other hand, Southeast Asian butter imports rose 59%, from 59,000 tonnes in 2000 to 94,000 tonnes this year.
China's butter import volume rose even more impressively from under 10,000 tonnes in 2008 to an FAO estimated 82,000 tonnes in 2016 and a projected 140,000 tonnes this year. Along the way, the share of world butter imports accounted for by China, Taiwan, Japan, South Korea and Southeast Asia increased from 24% in 2006 to 53% in 2016.
From all this, we can see some very definite patterns. South Asia currently functions as a stand-alone dairy market whose higher consumption and supply self-sufficiency is offset by significantly lower value-added content. Going forward, it is possible for India to maintain dairy self-sufficiency even for high-end goods. Even so, it will have to substitute the importation of dairy farming capital goods and cattle genetics if long-term supply is to keep up with demand.
With China acting as a locomotive, East Asia is becoming the world dairy trade's most important export destination, particularly for fluid milk and fatty, high end dairy goods. With fewer productivity gains to be reaped, we can expect Chinese and Southeast dairy production to rise at respectable, world-leading rates -but not nearly as quickly as their taste for high-end dairy goods from Europe, Australia, New Zealand and America.
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