USDEC: China’s Dairy Appetite Remains Robust

June 23, 2014 11:17 AM
 
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Despite its expected economic slowdown, the world’s biggest single dairy buyer will continue to seek substantial purchases from the global market.

Even the slowdown in China’s economic growth expected for 2015 won’t be enough to quell the huge dairy needs of the Asian giant, says Brad Gehrke of the U.S. Dairy Export Council (USDEC).

"China’s dairy appetite continues to be robust," says Gehrke, USDEC’s director of global trade analysis.

In April, the International Monetary Fund reduced its 2015 economic growth forecast for China to 7.3%. Should that come to pass, Gehrke notes, it would be China’s lowest annual growth rate since 1990—a 25-year period when the country’s economy gained an average of 10% annually.

That forecast, coupled with heavy investment in domestic Chinese milk production and signs that Chinese dairy import growth has slowed over the past couple months, have some dairy suppliers wondering if they need to worry about China’s dairy buying future.

"The quick answer is no," says Gehrke.

A drop in economic growth rate does not equate to sliding consumer incomes nor or a change in long-term projections for middle class expansion, urbanization or overall population gains—the major drivers of the nation’s growing dairy appetite, he notes. And major investments in domestic dairy farms do not mean China will become capable of satisfying that growing appetite.

"Last year, China relaxed its one-child policy, allowing certain families to have a second child," says Gehrke. "The change may not result in the immediate boom in population and consumption that some analysts project, but it could, conservatively, add another 700,000 mouths to feed per year, and by other estimates 2 million mouths."

China’s dairy consumption growth is expected to remain strong. According to Gehrke, the International Farm Comparison Network (IFCN) projected Chinese dairy demand would increase from 43 million tons liquid milk equivalent to 61 million tons, a 42 percent increase, by 2024. That’s an increased appetite for about 40 billion pounds of milk, equivalent to nearly all the milk produced in New Zealand each year.

"Domestic supply growth will meet a portion of that need but not nearly all," he says. "While analysts vary as to the precise volume of imports needed to meet demand, they agree it will be sizable—a minimum of 8-10 million tons (18-22 billion pounds) milk equivalent above current import levels. Imports will remain key to feeding the additional mouths, despite hundreds of millions being spent to build bigger, more efficient dairy farms."

Gehrke points to two factors when contemplating Chinese dairy farm investment:

1. Even with China’s transition away from small-sale farms to large-scale operations, it will be years before the large farms reach full capacity and efficiency. "Even then, China is not likely to ever become self-sufficient," he says.

2. China’s milk-production costs are high, making it unlikely that the Asian country will become competitive producer.

"As the world’s biggest single dairy buyer, accounting for around 16% of import volume last year, China’s market clout is unmatched," Gehrke says. "While [its] purchasing may vary month to month and even quarter to quarter, the long-term outlook remains very positive indeed."

Read Gehrke’s "Export Expertise" column in full here

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