September 25, 2024

 

China hit by severe milk glut

 

 

China is awash in unwanted milk as falling birth rates and cost-conscious consumers have cut demand even as dairy farms expanded in recent years, forcing smaller farmers out of business and squeezing shipments into the world's top importer.

 

China's milk surplus illustrates the unintended consequences of Beijing's food security-driven efforts to boost its dairy sector by touting consumption and encouraging expansion. Limiting the industry's export opportunities are high costs and the legacy of the 2008 scandal when baby formula adulterated with the chemical melamine killed at least six children and hospitalized thousands.

 

Weighed down by a sluggish economy that has weakened demand for higher-priced foods like cheese, cream, and butter, as well as an ageing population, Chinese milk consumption fell from 14.4kg per capita in 2021 to 12.4kg in 2022, the last year for which data from China's statistics bureau is available.

 

At the same time, milk output in China surged to nearly 42 million tonnes in 2023, from 30.39 million tonnes in 2017, surpassing Beijing's 2025 target of 41 million tonnes.

 

Chinese milk prices have fallen since 2022 to below their average production cost, causing many loss-making farms to shut and other farms to shrink their herds by selling cattle for beef – another oversupplied market.

 

Modern Dairy, one of China's major producers, reported a halving of its dairy cattle herd in the first half of 2024, posting a net loss of ¥207 million (US$29.3 million)

 

"Dairy farming companies are losing money on selling milk and selling meat," said Li Yifan, head of dairy (Asia) at commodity financial services firm StoneX.

 

China's dairy industry mushroomed after Beijing's 2018 call for more farms and higher output, part of the wider push for greater food self-sufficiency, spurred a proliferation of farms and imports of hundreds of thousands of Holstein cattle to stock them.

 

But in addition to the slowing economy, a drop in births has meant fewer babies need milk formula. China's 2023 birth rate was a record low 6.39 per 1,000 people, down from 12.43 in 2017, according to government data.

 

China's dairy industry has also struggled to meet Beijing's 2018 call to educate consumers to move from drinking milk to "eating milk" to increase dairy consumption.

 

Liquid milk makes up 80% of China's dairy consumption, and efforts to develop a market for cheese, cream, and butter, turning milk into higher-value products with longer shelf life, have been stymied by belt-tightening consumers.

 

To manage the excess output, China's producers are turning raw milk to powder, creating a surplus by the end of June of more than 300,000 tonnes, the China Dairy Association said, roughly double the previous year's level.

 

China is also trying to export whole milk powder, but that potential is limited by the memories of the adulteration scandal, said StoneX's Li, and even many Chinese consumers prefer foreign brands despite government efforts to improve food regulation and boost confidence.

- Reuters