James O’Donnell, of Bord Bia’s Shanghai office, alsosays that China’s national herd dropped below 14m head in 2014.
Mr O’Donnell says Chinese dairy imports reached record levels in 2014, driven by strong growth in liquid milk, cheese and butter, while imports of whey powders slipped slightly.
“With a higher cost base and a fragmented structure, Chinese farmers are having difficulty competing with imported milk prices,” O’Donnell says in Bord Bia’s Food Alert trade publication.
“Despite some slowdown in economic growth, where GDP growth is expected to be around 7% (very respectable; its lowest level since the ’90s), China’s dairy demand is expected to increase.”
According to figures issued by China’s Ministry of Agriculture, local producer prices dropped by 10% last year, from RMB4.19/kg (€0.59) in January, 2014, to RMB3.75kg (€0.52) in December. These prices put the Chinese farmers at a competitive disadvantage (with prices ranging from 30-40c per kg being paid to European producers), and at a greater disadvantage with the leading New Zealand and Dutch co-ops.
O’Donnell says that increased dairy consumption is closely tied to city growth, with 90% of dairy consumption in urban centres.
The strong urbanisation trends are expected to continue and, by 2050, China’s cities will represent 77% of the population, compared to 54% today. Thus, Chinese demand for imported milk may continue.
“Demand for dairy products slowed in the second-half of 2014, where domestic output slowed and imports declined on the previous year,” he says.
Total annual output from China showed little change, while imports of liquid milk and powders are expected to have increased for the full year.
Higher stock levels reduced imports in the second half of the year.
“The environment resulted in a difficult year for Chinese infant-formula manufacturers, where 21% of Chinese dairy enterprises suffered losses, as stocks were high and, as a result, they were not in a position to benefit from reduced world prices,” says O’Donnell.
According to AC Nielsen, infant-formula sales value increased by 4% in the first half of 2014, while the sales volume decreased by 7%. This reflects a continued shift by consumers towards premium and super-premium brands, which are mainly imported.
Meanwhile, Alan O’Brien, of Bord Bia’s Shanghai office, has also projected that Australia’s free-trade agreement with China represents a big win for Australian dairy and meat sectors.
China is to phase out import tariffs over the next ten years, and within four years for dairy. This latter relaxation of import restrictions is in line with China’s agreement with New Zealand.
Mr O’Brien says that volume growth represents a core marketing tool in China, in building strategic relationships. However, Australia’s overall dairy production has decreased in recent years.
“This free-trade agreement will increase Australia’s competitive position in China, especially with regard to New Zealand, its core competitor in powders and commodity products,” says Mr O’Brien.
“Tariffs on Australian dairy products are expected to be brought in line with New Zealand; all being phased out by 2019.
“This deal will also impact Europe’s competitive position across key commodities, including infant formula.”
Source: Irish Examiner
