China’s thirst for imported dairy products will expand over the next five years to equate to New Zealand’s entire annual production, Agrifax senior dairy analyst Susan Kilsby says.
Though NZ had a foot in the door, being first with a free-trade agreement with China, there would be increased international competition, made tougher by Russia’s ban on Western imports, Kilsby, who spent three weeks in China in June, said.
She found China would need to import more dairy produce in coming years than it had so far.
During her visit Kilsby attended an industry conference and visited farmers, processors, and traders before producing her 60-page China Dairy Report.
“The gap between demand and supply in China has opened up and is expected to expand further,” she said.
China was importing 25% of its dairy needs to fill the gap that had been widening since 2008 but by 2020 it would have to import 30%.
That meant imports in 2020 would be 70% higher than last year.
“It is a huge amount,” she said.
“The deficit in 2020 will be 20 million tonnes, which is equivalent to NZ’s total milk production now.
“It does look good, though our exporters will face more competition.
“It is positive for NZ because we were in there first and supply 60% of the dairy products and virtually all the milk powder they buy.”
Russia’s ban on Western products would increase competition as its suppliers looked to China to soak up their milk, she said.
Milk supply was also expected to continue to expand in the United States and European Union.
The other important factor in the equation was domestic milk production in China, she said.
While it was a big milk-producing nation, growth had stalled.
Since 2008, when the melamine scandal broke, China had been addressing its milk quality and quantity issues.
The solution to both problems has been to move production from peasant farmers to massive, large-scale corporate farms but the process had stalled, she said.
One in five Chinese cows was now on a 1000-plus cow farm but there were still as many tied up at the back door of a peasant farm.
The Chinese Government had set a target for domestic milk production of 50 million tonnes by 2015, which equated to a 40% increase from last year’s levels, she said.
“The Chinese Government’s growth projections for domestic milk production are far too ambitious and will not be achieved.”
And the Chinese were finding the development of large-scale farms and improving milk quality come at a cost, which made their home-produced raw milk expensive.
Most locally produced milk was sold as liquid milk, she said.
The big farms in China were paid twice as much as NZ farmers for their raw milk and well above prices in the US and EU.
“It is hard to see the industry rapidly expanding when imports are cheaper.
“Their own industry is becoming less competitive.”
The disparity between local and imported milk prices had been increasing for a couple of years and was unsustainable, she said.
Source: AgriHQ