March 14, 2013

China sees 6% rise in milk production during 2012

China's milk output has seen a rise of 6% in 2012, along with imports of all dairy products, despite tight supplies.

Growth rates are slightly below that of 2011.

Domestic output stays under 23 million tonnes for the 11-month period to November. Drinking milk sees a 6% rise, at 19 million tonnes, while solid dairy products are at 3.5 million tonnes, a 9% increase.

The domestic processing sector found their margins squeezed as average milk prices and labour costs increased. At US$0.6/kg, China's milk prices rank the fourth highest in the world after Japan, South Korea and Norway. Despite tighter margins, Yili and Mengniu both performed well with significant increases in their profits driven by higher retail prices, particularly within their infant formula business.

According to Chinese customs, imports of milk powders increased at its highest rate in 2012. Whole milk powder imports reached over 405,000 tonnes while volumes for skim milk powder reached 167,000 tonnes, both up by over 20% on the previous year. Infant formula amounted to some 91,000 tonnes, up 16%.

Whey powder (and permeate) import volumes amounted to over 378,000 tonnes, an increase of 10% but below the increase experienced in 2011 (30%).

The outlook for this year remains positive with retail prices across the dairy sector expected to increase further. While a further increase in domestic production is anticipated, it will fall short of market requirements resulting in increased dairy imports in 2013.

While improvements in food safety and controls within the supply chain are a priority at industry and Government level, consumer confidence in domestic product still remains low.