China’s population will begin to shrink by 2030. How will that affect the outlook for its now-robust dairy product demand?
Despite a disappointing first read on China’s more liberal one-child policy, dairy product demand will continue to grow in China as more people enter the middle class.
By loosening China’s one-child policy to allow couples to have a second child as long as one parent is an only child, central planners in China expect roughly half of the estimated 11 million eligible couples to have another child within the first five years following the policy revision. Six months into the new policy, however, only 3 percent of eligible couples had applied for permission to have a second child.
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"Would-be parents in China are deterred by an onerous application process and the high cost to raise a child," says Sarina Sharp, agricultural economist with the Daily Dairy Report, Chicago, Ill. Credit Suisse estimates that the cost of child-rearing consumes about 43 percent of an average household’s income in China.
Soon to be on the decline
While central planners in China are not trying create an actual baby boom, Sharp says they are hoping to slow the country’s inevitable decline in population.
"China is trying to avoid becoming like Japan, with a quickly aging population and no hope of growing the workforce," says Sharp. "At best, China’s demographics will be like those in much of the developed West, where the workforce is growing despite a contracting population because women are choosing to have children later in life and are working for a greater portion of their lives."
The United Nations predicts that China’s population will begin to shrink by 2030 after years of slowing population growth. Even so, demand for dairy products in China should continue to be robust.
China’s rapidly growing economy coupled with its strong population growth has pushed dairy consumption skyward. Over the past five years, China’s skim milk powder consumption has grown from 124,000 metric tons in 2009 to an estimated 379,000 metric tons this year, according to USDA. Whole milk powder consumption has climbed from 1.064 billion metric tons in 2009 to an estimated 2.248 billion this year, and fluid milk consumption has increased from 11.79 million metric tons to 15.15 million. USDA does not provide consumption data for cheese or butter in China because they are consumed in much smaller quantities.
Africa Unlikely to Take China’s Place
Sharp questions whether growth in Africa and other developing countries will be able to offset declines in China longer term. "There will certainly be more people in the world by the time China’s population begins shrinking outright," she says. "The question is whether people in the world’s most rapidly growing nations will view dairy products as an affordable part of their diet or a luxury."
At the same time China’s population growth is slowing or contracting, Sub-Saharan Africa, the world's poorest region, will more than double in population, from 1.1 billion in 2013 to 2.4 billion by 2050, according to the Population Reference Bureau. The current population of China today is an estimated three times that of Sub-Saharan Africa.
"Africa will not be as great a new market for dairy products as China unless it can combine population growth with economic growth," notes Sharp. "Some African nations have a growing middle class, but economic growth in Africa is very uneven."
Regardless of whether the more liberal one-child policy takes root in China, Chinese dairy product consumption will likely continue to rise for the foreseeable future as more people enter the middle class and overall consumer spending increases.
"China will likely continue to import huge volumes of dairy products in the years to come," notes Sharp. "Demand growth is poised to outpace any increase in supply, and China has recently shown increased interest in UHT milk and cheese."
China’s appetite for dairy products, however, would be even larger if Beijing were to successfully halt the long-term demographic trends of the one-child policy.