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USDA GAIN: Dairy and Products


26 October 2012

USDA GAIN: China Dairy and Products Annual 2012USDA GAIN: China Dairy and Products Annual 2012

An increase in dairy herd numbers and use of high-quality forage is increasing China’s domestic fluid milk production. Domestic consumer preference for safe, reliable products continues to support estimates of higher 2013 imports of 14.35 MMT, benefitting the primary suppliers from the European Union. U.S. producers, China’s largest supplier of non-fat dry milk powder, should continue to see export opportunities grow as Post forecasts a 16 percent growth in NFD milk imports to 230,000MT. Price advantage over whole milk powder, rising consumer and industrial demand and small domestic production will continue to influence the orders for NFD milk imports. Nevertheless, demand for whole milk powder, continues a steady upward trend, with favorable global prices and safe product requirements, influencing import demand. China’s whole milk powder exports are expected to rise by 10 percent in 2012 to 11,000 MT, primarily to Hong Kong and small African and southeast Asian countries.
USDA Gain Report - Dairy and Products

Commodities:

Dairy, Dry Whole Milk Powder
Dairy, Milk, Fluid
Dairy, Milk, Nonfat Dry

Fluid Milk

Production

China’s 2013 fluid milk production is expected to rise by five percent to 34.4MMT based on a six percent growth in the dairy herd to 8.4 million head. To better manage higher production under tight domestic resources (land and water) and higher costs (feed grains and labor), China’s commercial dairy industry is focusing on improving yields. Industry sources report the sector is incorporating elevated animal feed products, such as alfalfa and other high-quality forages, to augment fluid milk results. Due to these favorable results, Post raised its 2012 production estimate to 33.8 MMT. The Chinese government is expected to support industry efforts by allocating RMB1.2 billion ($333.3 million) to alfalfa production improvements and will continue genetic research on breeding milk cows. The trend in increased alfalfa use should positively impact US producers who currently supply 95 percent of China’s total imports.

Prices:

Domestic milk prices remain stable in 2012. From January-July 2012, the average farm-gate price increased by four percent compared to 14 percent during the same time in 2011 (what happened in 2011 to drive the prices up that isn’t happening in 2012 which caused prices to be stable).

Consumption:

China’s 2013 fluid milk product consumption is forecast to increase by six percent to 14.35 MMT over 2012’s revised estimate. This increase will largely be met through imports. Three factors can be linked to this import increase: (1) wealthy consumers favor imported milk products as safer than domestic dairy products, (2) urban consumers prefer pasteurized fresh milk, and (3) Chinese schools and military programs opt for ultra high temperature (UHT) milk products.

Trade

Import:

Largely due to an increase in domestic demand, China’s fluid milk imports are forecast to reach a record high of 100,000 MT, a notable rise over Post’s revised 2012 import estimate of 78,000 MT, based on shipments to date. Germany, New Zealand, and Australia are the top three suppliers of China’s fluid milk imports, accounting for nearly 83 percent of China’s total imports. Germany’s market share outpaced New Zealand this year due to price competition. New Zealand’s current export price to China of $1,870 per ton is more than double Germany’s export price of $792 per ton.

Export:

China’s 2013 fluid milk exports are forecast to increase by seven percent to 30,000 MT, largely due to higher demand in Hong Kong.

Non-Fat Dry Milk

Production

Due to a low number of processing plants, China’s 2013 production of non-fat dry (NFD) milk is expected to remain limited, and is forecast to rise by only two percent to 58,000 MT.

Consumption:

FAS/Beijing estimates NFD consumption at 288,000MT, up 12 percent from the revised 2012 estimate, due to NFD’s current import price advantage over whole milk powder.

Trade:

Imports:

Due to continued expectations that NFD’s price advantage over whole milk powder (WMP) will come into 2013, Post forecasts 2013 imports will increase by 16 percent to 230,000MT over the revised 2012 estimate. The upward revision in the 2012 figures also reflects this trend as NFDM prices, which are running $146/ton less than the whole milk powder price per ton of $3,531, continue to attract buyers.

The United States is the second largest supplier of non-fat dry milk products to China. From January to August 2012, U.S. exports reached $1.06 million compared to $907,000 during the same period in 2011. New Zealand is a strong competitor for market share with the United States.

Exports:

With little domestic production, China does not have exportable supplies of non-fat dry milk.

Whole Milk Powder

Production:

China’s 2013 production of whole milk powder (WMP) is forecast at 1.21 MMT, an increase of five percent from 2012 as domestic demand for processed products, including infant formula, continues strong growth.

Consumption:

Despite NFD’s current price advantage, consumption for WMP is expected to increase by nine percent to 1.68 MMT as import demand from consumers, food processors, and ice cream manufacturers, maintains its steady upward trend.

Trade:

Imports:

China’s whole milk powder imports in 2013 are forecast at 480,000 MT, an increase of 12 percent over 2012’s upward revision by 88,000MT to 420,000MT. The shift reflects the impact of affordable global prices. For example, from January-August 2012, whole milk powder’s average import price was $3,531/ ton, a drop of $108/ ton compared to the same period in 2011. Continued media reports of unsavory domestic production practices also continue to sway consumers toward imported products. For instance, China manufactures allegedly used industrial-grade gelatin from leather shoe factories in yogurt products.

Exports:

Whole milk powder exports in 2013 are forecast at 11,000 MT, up ten percent due to additional demand from Hong Kong and small African and Southeast Asian countries. The 2012 export estimate is revised downward reflecting currency implications of the Chinese currency against the U.S. dollar making China’s exports less price competitive.

Other Updates:

Whey

China domestic whey production is almost nil. From January to August 2012, the average import price increased by 28 percent to $1,981 per ton compared to the same period last year. The United States is China’s primary whey supplier, accounting for nearly half of China’s total imports. France and Germany are the second and third largest suppliers at 15 percent and seven percent, respectively.

Trade Policy:

September 2012: China placed a ban on adding colostrums to infant formula milk powder or infant foods.

October 2012: Chinese government agencies warned Chinese consumers that on-line dairy products are not completely safe because they are not inspected prior to arrival.

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