October 23, 2024

 

China's milk production sector faces crisis of oversupply in 2024

 

In 2023, China's total raw milk output reached 41.97 million tonnes, a year-on-year increase of 6.7% compared to 2022.

 

Chinese raw milk output expanded continuously during the 2018-2023 period. Meanwhile, the production of dairy products last year was 30.55 million tonnes, a year-on-year increase of 3.1% compared to 2022. But, the growth rate of dairy product output was lower than that of raw milk, signalling weak demand for dairy products.

 

Data from the National Dairy Industry Technology System show that the milk price in May 2024 was ¥3.34/kg (US$0.47), down ¥0.55 (US$0.08) year-on-year from the same period last year. The returns of milk production turned negative for the first time since the organisation recorded the data. This downturn left more than 80% of industry players incurring losses.

 

China's dairy industry has displayed signs of overexpansion as early as 2023. Last year, many milk companies were revealed to experience higher revenues but with lower profits or losses.

 

The proportion of large-scale dairy farms (those with more than 100 cows) in the Chinese dairy market was on the rise from 2011 to 2023, growing from about 30% to 75%. Additionally, since 2019, the high returns of dairy farming have attracted significant investments. Based on initial statistics, there were 166 new dairy farm expansion projects in the country in 2021 and about 148 in 2022.

 

However, last year, as more new dairy farms commenced production, the supply of milk reached a glut. With milk prices falling and the cost of feed raw materials surging in global markets, small-scale dairy farms were squeezed out of the milk production market, and the number of domestic dairy cows dropped by about one million head in 2023.

 

Still, due to the higher milk yield of cows and the gradual release of new farms' production capacity, the oversupply of raw milk has not been resolved.

 

As milk farms suffer from the effects of over-expansion, dairy companies in the downstream of the industry chain and the beef cattle industry are also bearing the consequences. This year, milk prices were on a continual downward trajectory, with milk prices dipping below production cost for the first time.

 

Currently, many raw milk producers have begun to slow down capacity expansion. Indeed, recalibrating the supply-demand balance in the Chinese dairy industry is the key to market recovery.

 

- David Lin, eFeedLink