July 4, 2024

 

Major impact on global dairy as China makes advances in milk self-sufficiency

 

China reaching self-sufficiency in milk production has left an indelible mark on the world dairy industry following a year of global milk prices averaging around 37c per litre , according to Rabobank market analysts.

 

They said this has been starkly evident in the country's dwindling imports of whole milk powder, which nosedived from an average of 670,000 metric tons (2018-2022) to 430,000 metric tons in 2023.

 

They described China's milk increase of 11 million metric tons from 2018 to 2023 as a "monumental achievement". Chinese milk production has been estimated by the US Department of Agriculture at 41 million tonnes in 2023, up 4.6% from the previous year and by 28% compared to 2019.

 

The Rabobank experts said China is the dairy demand domino, and when it falls, it triggers a chain reaction, causing each subsequent domino to topple.

 

Next in the line are New Zealand, the dairy supply domino, and whole milk powder, which is New Zealand's main export commodity.

 

In other words, New Zealand, the primary dairy exporter to China, is grappling with the formidable challenge of seeking out new markets for nearly 150,000 tonnes of whole milk powder no longer required in China. This equates to almost 1.3m tonnes of milk, or 6% of New Zealand's annual milk production.

 

New Zealand's subsequent search for buyers of whole milk powder, skim milk powder, milk fat, or cheese, made from 6% of its national milk production, has inevitably intensified competition with its rival dairy-exporting regions, led by the European Union and the United States. It is this competition that has caused lower-than-average global milk powder prices, according to the Rabobank analysts. And the dominoes fall all the way back to the dairy farmer, who is now getting the lowest milk price since the winter of 2020.

 

That's the outcome according to the International Farm Comparison Network's Combined World Milk Price Indicator, which says the average world price was about US$0.42 in May, 2023 (per kilogramme of solid-corrected milk at 4% fat and 3.3% protein). It reached nearly US$0.44 in June, 2023, but then fell to about US$0.36 in August. Since then, the price picked up, consistently, reaching US$0.43 in May, 2024, about the same as 12 months previously.

 

Chinese demand was the driving engine for the global dairy market in recent years. The pandemic and ensuing economic challenges weakened Chinese demand, and China's stronger domestic milk production has further weakened its demand for imports.

 

Finding new markets for product from China's biggest dairy supplier, New Zealand, will stagnate global commodity prices, unless the scarcity of supply in some regions can keep the market in equilibrium.

Additionally, with Chinese demand dwindling, dairy farmers around the world may have to rely on a slowing of growth in global milk output to support milk and dairy product prices.

 

- Irish Examiner