Seven regions around the world account for 80% of global dairy trade: the European Union, the United States, New Zealand, Australia, Brazil, Argentina, and Uruguay. Even though those regions experienced record or near record high milk prices in 2022, Rabobank’s Mary Ledman said most of the regions posted year-over-year reductions in milk production in 2023.

Under most scenarios, less output would result in record high prices for milk, butter, and so forth, Ledman shared in her presentation during the California Dairy Sustainability Summit. However, that hasn’t happened because of one major factor: China.

The global dairy strategist explained that China set a goal in 2019 to grow milk production from 30 million metric tons to 40.5 million metric tons by 2024. That is close to 25 billion pounds of milk, and the equivalent of adding Idaho and Washington’s milk output in less than five years, Ledman said.

China met that goal, and as a result, the country improved its dairy product self-sufficiency from about 65% to 75%. Whole milk powder imports were reduced by 200,000 tons, which equals about 7% of New Zealand’s milk production, Ledman noted.

While the big seven global exporting regions decreased milk production since 2021, that has been offset more than four times by China’s additional production. “China’s drive to be more self-sufficient has been a double whammy to the industry,” she said.

Greater independence by the world’s largest importer resulted in more dairy products being pushed to the rest of the world, and that is why there has not been a strong price response to the production decline in those exporting countries, Ledman explained.

“High prices usually lead to strong milk production growth, but we did not see that in 2023, and we don’t necessarily see that moving forward either,” she noted.

Ledman said there is still opportunity in China, where per capita consumption of dairy products is only 30 kilograms per year compared to the United States, where people eat 300 kilograms annually. We must recognize, though, that China’s consumer base is changing.

“The dairy industry here in the U.S. looked at supplying the infant formula market in China [as an opportunity], but those days are gone,” Ledman said. Between 2020 and 2023, the number of people under 20 years of age is going to drop by 60 million, while those over 50 years old in China will rise by 100 million. This trend is happening in many countries, with Africa being the only continent where the number of young people is rising, she noted.

“Dairy demand remains resilient and stable in developed markets and is growing in developing countries, but changing demographics will impact demand,” Ledman concluded.