July 28, 2016

China Dairy Imports Solid in June

 |  By: Fran Howard

China’s economy is slowly growing and its imports of dairy products are increasing as well, but it will likely be a long time before U.S. dairy exporters are sending the volume of product to China that they sent several years ago.

China’s dairy imports in June were solid, says Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle. While most of the product shipped to China originated in New Zealand and other countries, she notes that any pick-up in Chinese dairy imports will help tighten global markets.

Looking at China’s economy first, second-quarter gross domestic product (GDP) showed 6.7% year-over-year expansion, the result of a series of stimulus measures from the Chinese government and central bank that helped buoy consumer demand. Second-quarter GDP also increased 1.8% from first-quarter GDP. The news was welcome given that China’s goal is for year-over-year gains in GDP of 6.5% to 7%.

China's economy has been gradually transitioning from one focused on manufacturing to one that is more demand-driven, and the transition has not been easy. Last year, China’s economy recorded its slowest annual growth rate in 25 years of 6.9%. In mid-July, Chinese Premier Li Keqiang called China’s economy “basically stable.”

Turning to dairy, China’s skim milk powder (SMP) imports in June reached 14,841 metric tons, according to the Global Trade Atlas. While China’s June SMP imports were 16% less than the previous year, they rose 15% from May levels on a daily average basis.

“New Zealand accounted for 63% of China’s skim milk powder imports, while China’s imports from the United States fell 37%, or 4,177 metric tons, to 7,104 metric tons,” notes Dorland. Year-to-date through June, China’s SMP imports were running 4% ahead of the same period a year ago after adjusting for Leap Year.

“Whole milk powder imports fared even better,” reports Dorland. In June, China imported 26,887 metric tons of whole milk powder, up a strong 120% from the same period a year ago but 14% less than in May. “This June’s volume was in sharp contrast to last year when June whole milk powder imports were the lowest for any June in the past eight years,” Dorland says. “Historical trends suggest that China’s whole milk powder import activity is headed toward its seasonal low point.”

New Zealand has accounted for nearly all, 99%, of China’s whole milk powder imports this year.

“Of particular note, China’s cheese imports continue to grow,” says Dorland. “In fact, China’s cheese import market is fast approaching the levels of South Korea’s and Mexico’s.” In June, China imported 8,113 metric tons of cheese, an increase of 28% from last year and up 22% from May.  New Zealand and Australia captured most of China’s cheese imports, with New Zealand accounting for 48% and Australia 27%

“Once again, the United States lost import volume compared to June 2015. U.S. cheese exports to China slipped 39%. Over the past several years, however, China’s import pace for cheese has been rising rapidly,” says Dorland. “China’s import gains for cheese have historically been calculated on a small base, but with China’s market in position to rival or surpass those of Mexico and South Korea, the import gains on cheese are becoming far more significant for world dairy markets.”