China's dairy companies are having trouble getting raw milk supplies. They are competing for milk and bidding up the price. According to the Ministry of Agriculture, the average raw milk price is up 18.9 percent since last year.
In August, Chinese officials hit multinational dairy companies with fines for allegedly fixing prices, but since then domestic companies have been raising prices. An article in the Liaowang weekly reported that the major Chinese companies announced increases in dairy product prices for the end of December. In some supermarkets, dairy products are sold out.
Also in August, officials banned imports of milk powder from New Zealand and Australia over a botulism scare. Many Chinese companies had been importing cheaper powder to manufacture milk but now they have to find domestic milk. (Interestingly, in January a China Ministry of Agriculture task force had recommended enacting "technical barriers to trade" to take pressure off the domestic dairy industry.)
At least one "expert" said there is no milk shortage because official statistics show that China's milk production and cow numbers have been steady. However, visits to production areas indicate that dairy cow numbers have fallen 20-to-30 percent. The Liaowang reporter went to a farm he had previously visited in 2009. At that time, the farmer had planned to expand from 1000 to 1500 cows, but his herd actually shrank to 200. Daily production by the "cow hotel" where he keeps his cattle had shrunk from 6 tons to 4 tons. The head of a farm in Hohhot said her town's cattle numbers fell from 17,000 in July to 13,000 now.
The Liaowang reporter said many people in the industry told him they thought the actual number of dairy cattle is less than the 14 million reported by statistics. Estimates vary from 8-to-10 million. One analyst estimated the number of dairy producers fell 10-to-20 percent in 2013.
One dairy analyst said China had had a milk deficit of 2-to-3 million metric tons each year since the melamine crisis in 2008. This year, he estimated the deficit had expanded to 4 million metric tons.
Another article explores the constraints on milk production. Small-scale farmers have been quitting in large numbers. Returns to dairying have been low as costs rose rapidly in recent years. Beef prices are high, so many killed off their cows and sold them for meat. Larger-scale farms are unable to expand due to lack of land and capital.
The article zeroes in on the conflict between investment and returns at different segments of the industry chain. Dairy farming yields relatively low returns but requires high investment. The consequence is that many companies pursue a strategy similar to that of apparel companies that specialize in design, branding and sales, and contract out the manufacturing to small companies. Some dairy companies adopted a "no cows" strategy. Other companies tried to operate their own farms but met with frustration.
Several industry experts anticipate that the milk shortage will be alleviated after a year or so because of the long lag in the milk production cycle.
Average price of raw milk, December 2011-November 2013.
Source: China Ministry of Agriculture
In August, Chinese officials hit multinational dairy companies with fines for allegedly fixing prices, but since then domestic companies have been raising prices. An article in the Liaowang weekly reported that the major Chinese companies announced increases in dairy product prices for the end of December. In some supermarkets, dairy products are sold out.
Also in August, officials banned imports of milk powder from New Zealand and Australia over a botulism scare. Many Chinese companies had been importing cheaper powder to manufacture milk but now they have to find domestic milk. (Interestingly, in January a China Ministry of Agriculture task force had recommended enacting "technical barriers to trade" to take pressure off the domestic dairy industry.)
At least one "expert" said there is no milk shortage because official statistics show that China's milk production and cow numbers have been steady. However, visits to production areas indicate that dairy cow numbers have fallen 20-to-30 percent. The Liaowang reporter went to a farm he had previously visited in 2009. At that time, the farmer had planned to expand from 1000 to 1500 cows, but his herd actually shrank to 200. Daily production by the "cow hotel" where he keeps his cattle had shrunk from 6 tons to 4 tons. The head of a farm in Hohhot said her town's cattle numbers fell from 17,000 in July to 13,000 now.
The Liaowang reporter said many people in the industry told him they thought the actual number of dairy cattle is less than the 14 million reported by statistics. Estimates vary from 8-to-10 million. One analyst estimated the number of dairy producers fell 10-to-20 percent in 2013.
One dairy analyst said China had had a milk deficit of 2-to-3 million metric tons each year since the melamine crisis in 2008. This year, he estimated the deficit had expanded to 4 million metric tons.
Another article explores the constraints on milk production. Small-scale farmers have been quitting in large numbers. Returns to dairying have been low as costs rose rapidly in recent years. Beef prices are high, so many killed off their cows and sold them for meat. Larger-scale farms are unable to expand due to lack of land and capital.
The article zeroes in on the conflict between investment and returns at different segments of the industry chain. Dairy farming yields relatively low returns but requires high investment. The consequence is that many companies pursue a strategy similar to that of apparel companies that specialize in design, branding and sales, and contract out the manufacturing to small companies. Some dairy companies adopted a "no cows" strategy. Other companies tried to operate their own farms but met with frustration.
Several industry experts anticipate that the milk shortage will be alleviated after a year or so because of the long lag in the milk production cycle.
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