The Chinese dairy industry is facing dual headwinds of excessive domestic milk supply and weaker consumer demand. With falling milk prices and a persistently sluggish economy, these hurdles will likely continue.
As of May 2024, dairy producers in China have experienced a 27-consecutive-month, year-over-year decline in milk prices due to overproduction. Average raw milk farm gate prices have fallen below pre-pandemic levels. According to the Dairy and Products Semi-Annual report in China from USDA’s Foreign Agricultural Service, China’s average cattle inventory grew by over 40% year-over-year by the end of 2023. This growth has led to a surplus of milk production and reduced farm gate prices for Chinese dairy farmers.
As a result of surplus production, dairy processors have been limiting their raw milk purchases due to limited shelf-life and storage capacity. Because of this situation, excess raw milk production is being pushed into whole milk powder (WMP) manufacturing because of its longer shelf-life. Unfortunately, this market movement has taken dairy into a spiral as processors limit purchasing contracts, meaning dairy farmers must sell their milk at lower prices.
Elevated dairy cow culling is projected to slow down milk production and eventually strengthen milk prices. However, the domestic beef price in China also has been plummeting since early 2023, so dairy producers are losing money regardless of if they sell the milk or the cow. When less efficient cows are culled from the herd and are sent to beef, the more efficient cows contribute to the higher milk production figure.
Dairy consumption is stable, but weak
China’s per capita dairy consumption was only 93 pounds in 2023, compared to a 653-pound per capita consumption figure in the U.S. This is about one-third of the world’s average dairy consumption and well below China’s recommended Dietary Guidelines intake of about 322 pounds per year, or 0.8 pounds per day.
Economic headwinds in China continue to take a toll on consumption. Buying power impacts how much money consumers are willing to spend. And if they feel restricted on what and how much they can buy, this will limit the items entering grocery baskets.
Some opportunities mentioned by the chief scientist of the National Dairy Industry Technology System in China include enhanced dairy cow culling, more investment in dairy processing, adding financial support for producers with tight finances, and improving governmental policies to promote sales of dairy products by dairy farms and independent processors. For now, dairy product exports to China will remain depressed, and supply and demand will need to be corrected before China will purchase more dairy products.
