Chinese demand for «high-end quality raw milk will maintain strong growth», China Modern Dairy said, citing «continuously rising» consumption levels, per capita.
This demand for milk will, «in the long run… exceed its supply», the group said.
«Therefore, it is expected that there is still room for an increase in prices of domestic raw milk in the long term.»
Market flooded
The comments came as China Modern Dairy unveiled a 50% surge to 762.9m remninbi in annual earnings, on revenues up 52% at 5.03bn remninbi for a year – calendar 2014 – it said had been a «challenging» one for the country’s dairy industry.
«As milk prices in the overseas market declined significantly… imported bulk milk powder and imported liquid milk products flooded into the Chinese market,» the group said.
«Within only one year, a milk supply shortage was transformed into oversupply, triggering an enormous drop in pricing of local raw milk,» and prompting significant reductions in herd size.
Faced with lower milk prices, a «large number of dairy farmers withdrew from the market and dairy farmers dumped milk and killed cows in some regions».
Output growth forecast
However, the herd reduction was focused on smaller producers, with large farms, backed by economies of scale and in many cases considerable foreign and domestic investment, accounting for a growing proportion of Chinese milk output.
China Modern Dairy itself – whose herd comprises more than 200,000 dairy cows on more than 20 farms – forecast a rise in its own milk output this year, saying it was on track to hit a target of 1m tonnes.
The group last year sold 931,334 tonnes of milk, a rise of 37% on the 2013 result.
Safety scandal
China Modern Dairy faced a safety scandal in November, when shares tumbled on the news that a subsidiary of the group had sold diseased cows at auction.
This was a worrying development given China Modern Dairy’s reliance on consumer trust. Many Chinese consumers are deeply suspicious of domestically produced dairy products.
The Chinese domestic milk market has been shaken by a number of high-profile scandals which broke between 2008 and 2010.
The baby-formula market was particularly badly affected, with tens of thousands of children hospitalised after the milk supply was contaminated.
China Modern Dairy’s results were released after the close of Hong Kong markets, where its shares on Monday closed down 1.1% at HK$2.65.
The shares are up 19.9% year on year.
Source: Agrimoney
