The Chinese economy has slowed dramatically, which is bad news for global dairy prices. The country’s GDP expanded 6.3% in the second quarter compared to the same period in 2022, which was still less than economists projected. The figure was sobering in light of the fact that second-quarter GDP rose by just 0.4% last year, the second-lowest growth rate in the previous ten years, according to Betty Bering, analyst with the Daily Dairy Report. The lowest GDP reading was in 2020, during the height of the epidemic. If GDP continues to stagnate, the government may fail its 2023 GDP target of 5%, which is currently regarded moderate, she added.
“China has been importing fewer dairy products, driven in part by its faltering economy,” Bering said. “Despite the Chinese government’s efforts to restart the country’s economy following the severe Covid-19 lockdowns, dairy demand has sputtered.” While the Chinese economy started to recover in December 2022 when pandemic-era restraints were eased, it has since faltered. Other economic data signals indicate that problems is looming in China, and declining dairy demand may keep global dairy prices stable for some time.”
China’s exports have also declined. China’s exports decreased 12.4% year on year in June, after a 7.5% drop in May. The country’s real estate crisis is also ongoing. CNN reported earlier this month that China extended policies enacted in 2022 to support the country’s real estate industry, which accounts for 30% of GDP. According to the New York Times, about 20% of properties in Nanchang are empty, the highest percentage of vacancy among 28 big and medium-sized Chinese cities.
In terms of Chinese dairy imports, whole milk powder (WMP) purchases increased 37.6% year on year in June to roughly 105.6 million pounds, according to Trade Data Monitor. Following a terrible first four months for WMP imports, June’s strong gain represented the second straight month of increases over the previous year, according to Berning. However, China’s WMP imports of 610 million pounds year to far through June underperformed the same time in 2022 by 45%, or over 500 million pounds.
“With a 90% market share, New Zealand has borne the brunt of the decline in WMP imports, and tepid Chinese demand has been cited as a critical reason for low milk prices in the 2022-23 and 2023-24 seasons,” Berning said.
Chinese imports of ultra-high temperature milk (UHT) were down year over year in every month this year. In June, UHT milk imports fell by more than 17%. Skim milk powder imports from China have fared better than WMP and UHT milk. Year-to-date imports of 460.4 million pounds were up roughly 21% year on year through June. China’s SMP imports of 63.6 million pounds in June increased by 20% over June 2022 but fell short of the 75.5 million pounds imported in June 2021.
Looking farther forward, Berning believes China’s population has reached a tipping point, with birth rates declining and death rates rising as the population ages. While China will remain a significant market for dairy goods, its significance may diminish, especially if the nation continues to invest in its own dairy sector, she noted.
