Competitive China Reduced By Rising Production Costs

The output of almost all products from raw milk to whole fat milk powder is increasing, leading to a general decrease in imports. However, imports of cheese, which is becoming increasingly popular in China, are predicted to increase by almost one third next year.

Production

Recovering Non-Fat Dry Milk (NFDM) Production

China’s non-fat dry milk (NFDM) production in 2008 is expected to recover by three percent to 65,000 mt. Domestic NFDM production dropped considerably from its peak of 83,000 MT in 2003 to 60,000 MT in 2005 when domestic poor-quality milk powder caused food safety problems during 2004-2005.

China started stepping up quality control for milk powder in 2006, and Chinese consumer confidence in domestic milk powder has gradually recovered.

Increased domestic demand and lower imports in 2007, because of higher international prices, has driven domestic production upward. However, increasing production cannot offset falling imports. This trend is expected to continue into 2008, since China’s main suppliers - New Zealand and Australia - have suffered serious droughts causing milk prices to rise significantly.

Consumption is forecast to fall by 2 pct to 99,000 mt in 2008 because of fewer imports. The NFDM market in China is confined mainly to older people in lager cities who drink it for health reasons. Domestic consumption varies inversely with international prices. And higher international prices are expected to constrain Chinese consumption throughout 2007 and 2008.

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