Milk Glut in China Since 2021

The predicament facing China's dairy and beef industries was featured at an October 25 State Council press conference in Beijing where a Ministry of Agriculture official said his department is closely watching the "complex and severe" situation facing the beef and dairy industries as prices fall and farms run into financial difficulties. 

A Q3 2024 report on livestock production costs in Shandong Province found that dairy producers are losing 15,000 yuan on each cow. Milk is bringing in less income--raw milk prices are down 15.65-percent year-on-year--and plummeting beef prices mean that farmers get 23-to-33-percent less for culled cows compared with last year. ...And last year was also bad.

Milk prices remain under pressure with supply exceeding demand and dairy companies looking to offload excess inventory. Fluid milk sales were down 8.6 percent in 2022 and 2.15 percent in 2023. According to the Shandong report, milk consumption is still declining this year and will remain under pressure in Q4. A China Agriculture University professor ascertained that the supply-demand imbalance is more severe than last year. He estimates a 3.6-percent decline in China's dairy herd this year. The National Bureau of Statistics (NBS) reported a 0.1-percent decrease in dairy output during the first 3 quarters of 2024, but Shandong Provincial officials estimated their province's milk production during Q3 was up 6 percent year-on-year.

Chinese officials began pushing dairy production with a "Dairy Industry Revitalization" launched by the State Council in 2018. NBS data suggest a growing milk glut in China that corresponds to the years after the launch of the dairy revitalization plan. China's dairy production growth has clearly outpaced consumption between 2019 and 2023. Milk output divided by population grew from 23 kg to 30 kg while per-capita dairy consumption reported by NBS's household survey grew by less than 1 kg over those years. 

Per-capita production = production / population
Per-capita consumption from household survey.
Source: National Bureau of Statistics, China Statistical Yearbook.

In a September article, China Youth Daily fretted that dairy consumption is still low--just 37 percent of the world average--and well below the 300-to-500g daily consumption recommended by Chinese nutrition guidelines. The article called for increases in consumption to utilize excess production capacity and to alleviate severe losses of dairy companies. 

The article cited official data showing that China's milk output rose 6.7 percent in 2023 to a record high, but consumption dropped by 1.6 percent. Agriculture Ministry researchers estimated that the income elasticity for milk is 1.74, so consumers treat it like a luxury item they consume when they can afford to do so. (...and presumably they stop buying milk when their incomes fall.) Researchers also found that Chinese consumers think milk prices are too high and prefer bargain-priced milk products over high-quality products. 

After years of rapid growth China's milk imports peaked in 2021 and dropped 38 percent by 2023 to a level about the same as in 2019. As this blog noted in a September post imports of infant formula peaked in 2019 and subsequently dropped 33 percent. Chinese customs data for January-October 2024 show that milk powder imports are down 24 percent so far this year. 

Source: China customs data.

An article released in conjunction with China's international imported product expo earlier this month described "fierce market competition," declining imports over the past two years, falling prices and shrinking profits for international dairy brands in the Chinese market. The expo was attended by 36 brave companies from 12 countries, including Nestle, Mead Johnson, Alafoz, and Fonterra. With prices of imported dairy products falling 15 to 18 percent this year, importers of dairy products are cutting costs, developing new products and market segments, the article said. The article reported impacts on financial results of several multinational companies stemming from the sinking Chinese market. 

A Chinese Government analyst recommended giving out coupons to boost consumption, launching a new student milk program, publicizing nutritional benefits of milk, and promoting milk in military and office canteens. 

At the October State Council news conference a Vice Minister of Agriculture said his ministry will guide farmers to "scientifically adjust herd size, order local officials to expedite distribution of subsidies for high quality heifers, continue a program to convert fields from grain to forage crops, subsidize alfalfa production, help farmers store fodder, pressure financial organizations to lend to dairy and beef farmers, and strengthen technical guidance.