China Dairy Demand Evolving as it Rises
One of the bright spots for international dairy trade has been China’s recovery as a buyer. Chinese import volume of dairy product categories grew 18% on a milk equivalent basis through the first eight months of 2016.
The Chinese dairy demand scenario, however, is anything but typical. Chinese import data clearly suggests we are in the midst of a demand shift. What isn’t clear is its magnitude and speed.
First, although Chinese whole milk powder (WMP) imports grew 21% in the first eight months over 2015, they are down more than 40% from their 2014 peak. Skim milk powder (SMP) volume is down 26%.
Second, cheese, fluid milk/cream and infant formula imports are well on their way to record years, not only posting double-digit gains over 2015 but far exceeding the 2014 boom year of Chinese dairy purchasing.
A blend of factors is driving China’s current buying pattern: Domestic demand growth is outpacing domestic supply as Chinese farmers struggle with challenges of poor weather and high input costs.
High domestic dairy prices have made imports more competitive. Chinese consumers express greater trust in the safety and quality of imported dairy products.
Chinese dairy consumption continues to rise with the expansion of food service and bakery outlets and a growing base of consumers drawn to dairy tastes, applications and nutritional benefits. The impact of the abolition of China’s one-child policy is still unknown, but it could potentially propel the positive momentum. These factors and others are positively tilting the import demand equation.
In the first eight months of 2016, Chinese fluid milk and cream imports grew 63% compared to the same period the previous year, while cheese and infant formula imports jumped 31% each. Fluid milk and cream, cheese and formula jointly accounted for 15% of China’s dairy import volume (milk equivalent) January through August 2016. This marks their second straight year of holding a double-digit slice of the pie—a clear shift from the aggregate 7% share they averaged from 2012 to 2014.
Food service has been the primary cheese driver, while Chinese consumers seeking higher-end finished products are driving infant formula and fluid gains. Trends suggest cheese, fluid milk/cream, butterfat and infant formula will outpace growth in milk powder and whey— although variations are inevitable.
Chinese whey imports, for example, grew 14% through the first eight months, culminating in a record 113 million pounds in August. The factors driving this year’s whey surge are less structural and more situational, due to low prices and increased demand for animal feed.
WMP has assumed the growth pattern it established prior to the 2013/14 bubble, but at its current pace, it won’t reach its 2014 peak for another two to three years. Milk powder, whey and lactose exports to China remain sizable and should grow, but recent statistics suggest China’s dairy needs are evolving.