Editor’s note: The following article is the final article in a series from the author after a recent trip to observe China’s dairy industry. China was a significant importer of milk powder, accounting for 20 percent of the total global trading volume in 2013, importing more than 850,000 metric tonnes.
However, as many dairy producers know, China drastically cut their milk powder buying in 2014, leading to a decrease in the world price of milk. Many have asked “why.”
It is likely that a combination of factors account for China’s withdrawal from the milk powder market. One is decreased need because so much was purchased that sufficient powder was in storage.
This would be a temporary situation of imbalance between supply and demand. In addition, there are questions about weakness in the Chinese economy that may have reduced demand.
A lack of transparency by China’s government means that we will probably not understand what is happening with its economy. Perhaps the more important question is in regard to the future: Will China import large amounts of dairy products again?
We can’t accurately predict what will happen, but here are factors that may provide insight.
- The consumption of dairy products by Chinese consumers has followed the sharp increase in China’s gross national income. Chinese personal income is projected to continue to increase and, with it, dairy consumption.
- Urbanization of China’s population continues, as opportunities in rural areas are very limited. Chinese people in urban areas consume dairy products at a rate four times that of rural residents.
- Chinese dietary habits have changed. In 2014, China replaced the U.S. as the top market for ice cream. Fluid milk is primarily sold in single-use packages and is UHT-processed and flavored. Pizza is becoming more popular.
- In general, parents desire that their children consume dairy products for greater health and growth.
- The one-child policy that had been in effect – and aggressively enforced – for more than three decades was changed at the end of October 2015. Though roughly more than 90 million couples will be eligible to have a second child, it is uncertain how many will register to do so.
However, the reason for the policy change was to increase the number of young people in China.
- The rate of breast-feeding among Chinese women is around 28 percent compared to the global average of 40 percent. This means the demand for milk powder for infant formula will increase more rapidly in China as births increase than it would where breast-feeding rates were higher.
- Foreign firms are investing in what they perceive as growth markets in China for dairy and meat. In October 2015, the general manager of marketing and business development for New Zealand-based Fonterra Cooperative Group Ltd. said, “The market for dairy products is growing rapidly, thanks to fast-changing food habits from Chinese restaurants and ordinary families.”
A representative from Yili, one of the major dairy companies in China, reported that they have more than 1,000 dairy products on the market, accounting for different volumes, flavors and fat levels. This is obviously a significant investment in product development, and yet maybe it indicates they are trying many products just to find out what sells.
While in China in October 2015, I found drinkable yogurt was the most commonly available product in the Inner Mongolian city of Hohhot. In Beijing, I saw several fluid dairy products in a small market, one on a cold shelf and another on a hot shelf.
In the Hohhot airport, huge wall ads advertised dairy products including ice cream and milk. These attractive ads featured children, a young woman and NBA basketball.
It appears that demand for dairy in China is likely to increase. One question is whether it will increase at a rate that is faster than the ability of the country to produce milk, thereby increasing imports.
Milk production within China is currently increasing at an annual rate of 3 to 6 percent. Given the potential growth of the market for dairy products in the country, it appears that there will be future increases in dairy imports.
However, there may be bumps in the road to increased imports as Chinese companies struggle to understand what the changes in the economy mean to their markets. Long term, dairy producers in New Zealand and Australia are likely to gain the greatest benefit of that market, but it should have a positive impact on world dairy prices.
Growth in China as a market for dairy products is good news, first for Chinese consumers and second for dairy producers throughout the world. PD
References omitted due to space but are available upon request. Click here to email an editor.
Phil Durst is a senior educator in dairy & beef cattle health and production with Michigan State University Extension. Email Phil Durst.
Click here to read the first article China's industry: Bumps and bruses on the fast track.
Click here to read the second of the two part series Chinese milk quality: A question mark may be appropriate.