This is the fourth in the ‘China series’ of articles written for the journal Primary Industry Management by Xiaomeng (Sharon) Lucock and myself. It was published in September 2013.
As with other products to China, the statistics have moved on in the last year but the drivers of change are similar.
In the last year since the Primary Industry Management paper was written, New Zealand’s total dairy exports to China have increased from $NZ2.9 billion for the 12 months ending 30 June 2013, to NZ6.05 billion for the 12 months ending 30 June 2014. These numbers will almost certainly decline in coming months, not because of a decline in volume, but from the current major downturn in prices.
The latest prices from our industry sources in China indicate that local farm gate prices for milk are still exceptionally high. Average quality milk is being purchased by processors for about 4.3 RMB per litre. That equates to over $NZ 13 per kg milksolids. Good quality milk is close to $NZ16 per kg milksolds.
Those Chinese prices are part of the reason why I retain some confidence that the Global Dairy Trade WMP (whole milk powder) price will rise again over the coming months. Currently, there is a major gap between the Chinese local prices and international prices, such that the Chinese processors have a real economic incentive to use more WMP from New Zealand.
In the longer term, the drivers remain as set out in the paper. Local consumer demand is increasing, but overall supply cannot keep up with this demand. This is despite the ongoing construction of large scale farms in norther provinces such as Heilongjiang. Our Chinese industry sources report that dairy self sufficiency in China has dropped from 95% in 2007 to 78% in 2014.
There is evidence that large quantities of UHT milk are now being imported into China. Chinese official data shows imports of 142 million litres of liquid milk in the first six months of this year. These volumes have increased threefold from 2012. This appears to be coming predominantly from Europe, America and Australia, with only modest quantities from New Zealand.
A pdf of the Primary Indsutry Management paper is here.
Woodford & Lucock Dairy Opportunities in China PIM Sep 2013