"It could take three to five years for China to once again produce the milk volume they lost in recent years," said Robert Chesler, vice president of FCStone Foods Division. In the meantime, China's appetite for dairy products should remain very strong. So strong that the nation could continue to import 20 percent of all the dairy products traded on a global basis.
There are a number of factors why China's appetite for dairy has been so strong. Certainly consumer demand is one reason and, of course, growing incomes help fuel that demand. The country's inability to produce enough milk has created a supply-side issue.
"In 2013, China's milk production fell by nearly 10 percent. That means China needed to replace well over 200,000 metric tons of dairy products," said Chesler. "This (200,000 metric tons) exceeded the growth in New Zealand milk production," he explained, noting that China had to look elsewhere to meet its dairy product needs. That sent prices in most major dairy exporting countries to record or near-record highs.
While China is setting plans in place to ramp up its domestic milk production, it will be a long road to meet that goal. "China produced an estimated 29 million metric tons of raw milk. Meantime, the Asian country's demand is 40 million metric tons," said Chesler.
In an effort to shore up its long-term milk production, China's government is switching its supports and subsidies from small to large farms in hopes of matching production models found in the U.S. and other leading milk producing nations. As it employed this strategy, many of the cows found on small farms did not move from small dairy farms to the large dairy farms as China had expected. "Instead, those dairy cows found their way to the dinner table as record beef prices encouraged small dairy farmers to sell dairy cows for beef," said Chesler.
Also confirming the trend toward larger dairy farms is data on alfalfa imports. "China imported a record 575,000 tons of alfalfa from the U.S. last year," said Chesler, noting that a great deal of that feed, mostly from the western U.S., was destined for dairy cows.
"Also at play is rampant foot-and-mouth disease issues which has reduced dairy cattle numbers in China as well," said Chesler. "With somewhat limited availability of dairy cattle imports, total dairy cow numbers have trended downward," he noted.