Dairy Companies Ordered to Buy Milk From Farmers

On January  7, 2015 China's Ministry of Agriculture issued an emergency notice urging local authorities to adopt measures to ensure that farmers are able to sell their milk. Local officials are ordering dairy companies to keep buying milk from farmers to prevent them from quitting the industry or killing off cows.

During 2013, China had a severe shortage of milk. Now, global market conditions of excess supply and falling prices are spilling over into China. 

China's farm price for milk fell from 3.92 yuan/kg last September to 3.75 yuan/kg in December.

A reporter for New Capital News went to several dairy-farming communities in Hebei Province's Xingtang County. A farmer at one community said local farmers have a contract with the Hebei subsidiary of a food company to sell them milk. However, in November 2014 the company told farmers they would only buy 80 percent of their milk. The farmers would have to figure out what to do with the other 20 percent.

The company had accumulated two months of product inventory they couldn't sell. Therefore, the company chairman ordered the Hebei subsidiary to limit purchases of new milk.

A county official said the milk price had fallen from 5.5 yuan/kg in the spring of 2014 to 3.6 yuan.

Hebei Province officials started to address the milk-selling problem in December. Provincial officials ordered local officials to "coordinate" dairy companies and farmers to address the difficulties selling milk, strengthen "supervision" of dairy farmers, requiring everyone to share the burden and risk. This appears to entail ordering companies to buy farmers' milk, telling farmers not to kill off their cattle, and ensuring the safety of milk.

When the reporter returned to visit the dairy farmers several days later, he was told that the farmers received a notice from the company eliminating the 80-percent limit and they are now able to sell all their milk at a price of 3.1 yuan/kg. County officials said the problem was "temporarily" solved.

Shandong Province has seen a steep decline in milk prices too. Ministry of Agriculture teams reportedly have been sent there to "coordinate."

The urgency of the milk measures seems to be motivated to avert another catastrophic problem like the melamine adulteration that was exposed in 2008. Hebei Province and its now-defunct Sanlu company was the epicenter of that incident. A similar period of depressed prices and culling of cows preceded the incident in 2007. When prices recovered later in the year, short supplies caused milk prices to spike and gave milk stations strong incentive to water down and adulterate milk.

The MOA emergency notice demanded that local governments strengthen oversight of dairy companies to ensure that they honor contracts and actively purchase milk. Echoing the 2008 problems, the notice called for maintaining orderly markets, for utilizing cooperatives to strengthen farmers' negotiating power, upgrading dairy-farming communities, supporting an alfalfa revival program, and implementing the improved breed subsidy. The notice called for local officials to fight for a subsidy to hold local reserves of milk powder.

The falling prices have been transmitted from the global market. Major dairy producers like New Zealand and the EU have seen prices fall 30%-40%. Some Chinese companies are importing cheaper milk from other countries, and reducing their local purchases. Further declines in price are anticipated in 2015.