December 2, 2011
China's imports of whole milk powder fell more than half to 9,218 tonnes in October, compared with a year earlier, the latest data from Global Trade Information Services showed.
The drop mirrored a similar on-year fall in the previous two months.
Further evidence of a deteriorating global dairy market came Thursday (Dec 1) with export prices for New Zealand, the world's biggest dairy exporter, falling 4.8% in the third quarter, which followed sharp falls in spot dairy prices in the second quarter, said Anne Boniface, Westpac Banking Corp's senior economist in New Zealand.
Prices for whole milk powder, which comprise the biggest chunk of New Zealand exports, have fallen around 30% from their March peaks in Fonterra's fortnightly Global Dairy Trade auctions, she said.
"Chinese growth has been slowing in the second half of this year and you'd expect consumer demand to slow as part of that," said Boniface said, cautioning that monthly trade numbers are volatile and also reflect seasonal factors.
Overall Chinese dairy imports fell 6.5% to 69,188 tonnes in October on-month but rose 6.6% on-year.
It is unclear why China's imports have dropped, though they follow a spike in whole milk powder imports in April to 55,613 tonnes, the largest level in at least two years. It also follows a similar pattern last year, when a summer surge was followed by a drop in September and October before rising again in the last two months of 2010, though this year's pattern has been more extreme.
China is the primary driver for the global whole milk powder market, said Joanne Bills, manager of strategy and knowledge at Dairy Australia Ltd, adding that Chinese imports of whole milk powder in the 10 months ended October 31 this year of 280,187 tonnes showed a 7.7% rise on-year.
Bills said that the drop in demand may be explained by Chinese importers expecting to benefit from a lower import tariff agreed under a trade deal with New Zealand starting in January. In this case the slowdown in imports may suggest that importers are holding off and de-stocking by just buying hand-to-mouth before the new year, said Bills.
Still, if imports do not pick up early in 2012 after the import tariff changes kick in that will send a strong alarm signal, said Bills.
Westpac Bank's senior international economist in Australia Huw McKay said evidence of a downturn in discretionary spending on dairy in China would likely be found in high-end processed product, such as ice cream, yoghurt and smelly cheeses, but probably not with whole milk powder, which is used as an input for many products and as a baby feed.
Westpac expects growth in key Asian economies to slow in coming months and expect that this will put further downward pressure on food and commodity prices.