Is China’s dairy boom ending? Explore why milk production is slowing and what this means for the dairy sector. Read our expert analysis. 

Summary:

China’s prolonged period of rapid dairy production growth appears to be nearing its end. According to RA bore search’s quarterly dairy outlook, the nation’s milk production increased by 3.4% in the first half of 2024, down from 7.5% in 2023. Projections indicate this growth will slow even further to potentially 2% in the year’s second half. The causes range from capacity reductions and efficiency measures to declining import volumes and domestic demand. Small-scale dairy farmers are leaving the business, and large farms are culling inefficient cows, temporarily reducing milk production. The unpredictable nature of China’s dairy business, including fluctuating feed prices and strict environmental rules, increases production costs. The forecast for 2025 is even more concerning, with RaboResearch expecting a 0.5% decline in milk output, bearing potential ripple effects on global markets.

Key Takeaways:

• China’s milk production is slowing significantly and is expected to drop further from 3.4% in early 2024 to just 2% in the year’s second half.
• Capacity reductions and the culling of inefficient cows are significant factors contributing to the projected decline in milk output.
• Demand for Chinese dairy products is decreasing, with net import volumes down by 18% yearly in the first half of 2024.
• Imports of crucial dairy products like skim and whole milk powder have significantly declined.
• Despite this overall dip, butter and cheese imports have grown, indicating a shift in consumer preferences.
• RaboResearch forecasts a potential halt in milk production growth in 2025, with a projected 0.5% decline year-over-year.
• The decrease in production could introduce an “upside risk” to import forecasts if domestic consumption recovers faster than expected.

China’s once-rapid growing dairy sector is currently experiencing a significant downturn. With a 3.4% growth in the first half of 2024, down from 7.5% last year, this trend is not just a local issue. It can disrupt dairy markets worldwide, affecting milk pricing and international commerce. According to RaboResearch, ‘capacity reductions have started in China, and the dairy sector is adopting efforts to help control output to avoid prices from sliding further.’ Join us as we delve into the causes behind China’s milk production slowdown, its direct and indirect impact on global dairy trade, and probable future developments. It explores structural changes in China’s dairy industry, evolving local and imported goods demand patterns, and more significant economic factors. Understanding these future trends will help stakeholders plan for the shifting dairy sector scenario.

China’s Dairy Production Growth: A Waning Era? – Insights from RaboResearch, a trusted source in the dairy industry

RaboResearch’s quarterly dairy outlook offers critical insights into the possible problems confronting China’s dairy sector. In the first half of 2024, China’s milk output increased by 3.4%, a considerable decrease from the 7.5% rise in 2023. This research raises significant concerns about China’s dairy industry’s future and global effects. However, RaboResearch predicts that growth will drop further, with just a 2% rise, indicating a potential for growth in China’s dairy output and fostering optimism.

The Underlying Causes of China’s Slowing Milk Production: A Need for Comprehensive Analysis and Understanding 

Despite the significant variables contributing to the slowing of China’s milk production increase, the dairy sector is trying to reduce output, averting an overstock that may drive prices down. This strategic approach is critical for market stability, even if it means slower output growth. It highlights the industry’s resilience and adaptation to adversity, providing reassurance about its future.

Furthermore, small-scale dairy farmers are gradually leaving the business. Smaller businesses often struggle to compete with larger, more efficient farms, reducing milk yield. This tendency will continue as the market prefers more considerable, efficient dairy farms.

In parallel, significant farms in China are eliminating unproductive cows to optimize their operations further. This culling procedure is a more substantial attempt to increase production and save expenses. However, it also causes a transient decrease in milk production quantities.

Finally, the rise in milk supply per cow is slowing down. Large-scale farms in China have achieved efficiency levels similar to the world’s most modern dairy. As these farms approach peak efficiency, additional increases become more complex, resulting in a general slowing in output growth.

From Humble Beginnings to Global Stature: The Evolution of China’s Dairy Industry 

To understand the implications of the present possible downturn, examine the historical backdrop of China’s dairy business. A few decades ago, China’s dairy industry was primitive, primarily small-scale companies with little reach and effect. The early 2000s were a transformational time. Rising earnings and urbanization drove more significant demand for dairy products, causing the government to implement various supporting measures to modernize and grow the industry.

During these years, China invested significantly in large-scale dairy farms and used new technology to boost output. After meeting local demand, China became a significant participant in the global dairy business in 2013.

However, the sector has encountered its own set of obstacles. The 2008 melamine crisis, a significant event that harmed local manufacturers’ image and increased import dependency, was a turning point. After overcoming the crisis, the industry resumed fast development and became self-sufficient. The improvements were especially remarkable during the last decade, as indicated by high double-digit growth in numerous years.

Nonetheless, China’s dairy business remains unpredictable. Fluctuating feed prices, disease outbreaks, and strict environmental rules, often leading to increased production costs and operational challenges, have created uneven terrain. While large-scale farms benefited from economies of scale and technical developments, small-scale farmers battled to stay profitable, often encountering financial troubles.

This historical background highlights the present situation of China’s dairy sector. What we’re seeing today is more than a typical fluctuation; it is a vital crossroads for an industry that alternates between significant development and substantial setbacks. Understanding these evolutionary milestones and obstacles is crucial for stakeholders to be well-informed about the present slowdown and provides a valuable perspective for forecasting future patterns.

Ripples Across the Global Market: China’s Declining Dairy Demand 

China’s decreased demand for dairy products has caused ripples in the worldwide economy. The most notable decrease has been in net dairy product import volumes, which declined by an astounding 18% year on year in the first half of 2024. Skim milk powder (SMP) imports fell 36.6% to 132,000 metric tons (MT) owing to increased local supply and lower demand. Whole milk powder (WMP) imports fell 9.6% to 250,000 MT as China worked through its large local reserves. This demand reduction is a worldwide problem that must be addressed immediately and strategically.

The tendency goes beyond simply SMP and WMP. Imports of liquid milk and cream, yogurt, newborn milk formula, and whey powder were all dropping. The only exceptions were butter and cheese imports, which increased. RaboResearch predicts a 12% loss in China’s net dairy imports for the entire year, which is more gloomy than an earlier forecast of an 8% drop.

So, how does this affect the global dairy market? Reduced demand from China, a critical consumer, has already impacted world pricing and trade patterns. To counteract the effects of this slowdown, dairy farmers throughout the globe may need to modify their strategy, such as exploring new markets or diversifying their product offerings. This tendency presents a tremendous challenge for farmers and businesses that depend significantly on exports to China, requiring them to remain adaptable and inventive in an ever-changing market.

Declining dairy demand in China is a worldwide worry that may shift market patterns and require industry participants to reconsider their strategies. As the world’s biggest consumer of dairy products, China’s declining imports indicate possible instability for the global dairy business.

Global Dairy Dynamics: How Does China Stack Up Against Major Producers? 

To put China’s predicament into perspective, consider other major dairy-producing nations such as the United States, New Zealand, and the European Union. Over the last decade, the United States has steadily expanded milk output. In 2023 alone, milk production in the United States increased by 1.7%, following its steady growth pattern. This stability is primarily due to modern agricultural methods and solid economic infrastructure assisting dairy producers (US Dairy Export Council).

New Zealand offers an intriguing contrast. While it is a modest worldwide participant, it is nonetheless one of the top dairy exporters. Despite periodic setbacks due to weather and global market volatility, New Zealand’s dairy sector has shown extraordinary resilience. The nation capitalizes on its efficient pasture-based system, offering it a cost advantage in production (DairyNZ).

The European Union, another major dairy producer, provides still another perspective. Milk output in the EU has grown moderately, with a 0.8% rise projected for 2023. Policies under the Common Agricultural Policy (CAP) and advancements in dairy production have contributed to a constant output. However, the area regularly faces legislative changes and environmental limits, which strain its industrial capacity (European Commission).

China’s slowing milk production growth and diminishing dairy demand indicate a significant turning point, particularly considering its fast rise over the previous two decades. Unlike its peers, China confronts unique problems, such as small-scale agriculture inefficiencies and variable domestic demand, which limit its capacity to maintain development. With these worldwide comparisons, China’s situation becomes more apparent—it is entering a period that will demand strategic changes and innovations to stay competitive internationally.

Forecasting 2025: China’s Dairy Landscape Under the Microscope

Looking forward to 2025, RaboResearch portrays a bleak picture of China’s dairy output. The predictions show a substantial shift, with milk production growth anticipated to slow yearly to a slight 0.5% reduction. Why does this matter?

Dairy farmers and stakeholders should pay attention. The diminishing dairy herd will unavoidably increase production costs, which might further issue small-scale operators already under pressure to cull inefficient cows. Aside from supply difficulties, demand does not offer a more positive picture. Poor demand patterns seen in 2024 are projected to carry over into the early months of 2025, substantially reducing the requirement for dairy imports.

But not all is doom and gloom. The RaboResearch perspective offers an exciting possibility: the “upside risk” of import estimates. This danger stems from the probable confluence of two factors: a faster-than-expected decline in milk supply and a projected rebound in demand. Suppose local output tightens faster than projected as consumer demand recovers. In that case, we may witness a shift back toward more significant dairy imports.

This is a double-edged situation for the global dairy industry. Companies selling to dairy farmers must be agile and ready for any result. Managing the uncertainty of China’s dairy sector would need agility and intelligent thinking. Are you prepared to adapt?

The Bottom Line

China’s dairy output growth, once a strong foundation of the global dairy industry, is slowing dramatically. The first half of 2024 experienced a considerable drop in growth, and estimates show that this trend will continue, perhaps leading to a modest dip in 2025. Demand for dairy in China is also dropping, with significant decreases in imports of vital items such as skim and whole milk powder. This might mean substantial changes for global dairy farmers and industry experts, who may confront volatile markets and changing demand.

As we look forward, we must consider how this paradigm change in China affects global dairy trading patterns. What tactics could dairy farmers and other industry stakeholders use to prepare for these changes? The potential reduction of China’s dairy market forces us to reconsider the future of the global dairy sector. Are we ready for the global rippling effects that this slowdown may cause?

Learn more:

• Asia’s Dairy Boom: Unprecedented Milk Production Soars to New Heights!
• China to Implement Measures to Curb Dairy and Beef Production Amid Falling Meat Prices
• Is 2024 Shaping Up a Disappointing Year for Dairy Exports and Milk Yields?

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