Excess Egg Capacity in China

The U.S. has high egg prices in the shadow of last year's avian influenza, but China has a surplus of laying hens attracted by strong profits that have now turned into losses. 

U.S. egg prices are at less than half their March 2025 peak, but they are still at an historically high level. A USDA analysis shows that the spike in U.S. egg prices coincided with an outbreak of highly pathogenic avian influenza. The loss of over 50 million laying hens coincided with the peak holiday demand season, sending prices skyrocketing. The price spike in 2022 followed an earlier HPAI outbreak. 

Egg prices in the U.S. and China have been diverging. Egg prices in China and the U.S. were roughly equal until 2021 when an earlier HPAI outbreak led to a spike in U.S. prices. After the impacts of that outbreak dissipated, China and U.S. prices were briefly at parity again in 2023. Prices diverged again as the HPAI outbreak began driving U.S. egg prices skyward and Chinese egg prices tumbled. The average Chinese wholesale price reported by the agriculture ministry fell from about US$ 1 per dozen in September 2024 to about 60 cents per dozen in the second week of July 2025. The average Chinese wholesale price of eggs last week was down 20 percent from a year earlier. 

Wholesale market prices, China Ministry of Agriculture and Rural Affairs and USDA.
Chinese prices converted to cents per dozen using average weight in China and official exchange rate. 

Last week China's National Development and Reform Commission reported an even steeper 40-percent decline in the average farm gate price for eggs since the second week of July last year. The report estimated that a laying hen will generate a loss of about $5.80 for its owner based on July 2025 prices of eggs and feed, a reversal from an estimated profit of $6.23 a year ago. 

According to a National Bureau of Statistics report this week, egg production for the first half of 2025 was up a modest 1.5 percent from a year earlier. 

A commentary posted on a Chinese animal feed news site explained that strong profits in past years have attracted new entrants to China's egg industry, adding large numbers of laying hens. The Chinese industry is hoping that production of mooncakes and other snacks during the upcoming peak consumption season will sop up excess egg supplies. Some eggs are being frozen for use during the fall months.

An article last month on excess egg production capacity noted that inventories of Chinese eggs had already hit 1.324 billion in April--the highest in the last 3 years---and there had been no egg price recovery during another peak period--the Dragon Boat festival. An egg glut resulted from weak consumption due to effects of an economic slowdown on consumer incomes, and increased supply from the entry of large-scale farms boosted supply. A rebound has been elusive since producers hoping for a rebound have been slow to cull less-productive hens. 

China has not reported HPAI outbreaks recently, but China has had devastating outbreaks of HPAI that included human deaths about 20 years ago and in 2012-13. 

China's low and less volatile egg prices reflect low barriers to entry and lax regulation. The widespread use of antibiotics--despite a ban on 11 antibiotics in livestock production 5 years ago--has given rise to a market for "antibiotic-free" eggs. However, consumers' confidence in such eggs was shaken two months ago when food regulators in Shandong Province found levels of two antibiotics that exceeded food safety limits in their testing of "zero antibiotic" eggs sampled from a supermarket chain in Weifang City. The eggs were purchased from a company in one of China's largest poultry regions and certified free of antibiotics by a third-party organization. The findings attracted widespread attention on Chinese social media. 

China's Economy Couldn't Absorb Increases in Output during H1 2025

China reported GDP growth of 5.2 percent for Q2 2025 and 5.3 percent for the first half of 2025, according to a report released by China's National Bureau of Statistics (NBS) today. Growth in production, however, is outpacing demand, driving prices down and pushing surplus products into the export market. Nominal GDP growth could be much slower than these "real" GDP since the calculation tends to exaggerate the growth rate when prices are falling.

While the NBS report insisted that government policies are working, it also acknowledged that "domestic demand is still insufficient." 

Many prices declined as industries pumped out products faster than they could be sold, resulting in downward pressure on prices. The June 2025 CPI was down just 0.1% from a year earlier, but the "transportation and communications" component was down 2.8 percent in H1 2025, and it was down 3.7 percent year-on-year in June.

A clearer indication of excess production is the producer price index for products leaving factories. The producer price index was down 2.8 percent from a year earlier for the first half of 2025 and down 3.6 percent year-on-year in June. The producer price for industrial food products was down 1.5 percent for H1 2025, and down 2 percent in June.

The ex-factory producer price index has consistently shown month-to-month declines since 2022. After a burst of inflation during February-May 2022, the producer price index has stayed the same or fallen in 31 of 37 months since then. Producer prices fell each month in 2025 so far and in 10 months of 2024. Suspiciously, the producer price index has fallen by the same 0.4 percent each month from March to June this year.

Monthly change in ex-factory producer price index from China National Bureau of Statistics.

Note that China reports its GDP in "constant dollars," which may be misleading when prices are falling. Adjusting nominal or "current dollar" GDP with a price index less than 100 to calculate the "real" or "constant dollar" growth GDP (when prices are falling) would yield a "real" GDP growth that exceeds the current dollar or "nominal" GDP growth rate. The 5-percent growth in "real" GDP reported by NBS calculated with a price index showing a 2.8 percent decline in prices (reflecting the producer price index) implies nominal GDP growth might have been just 2.2 percent. (If they used the CPI to adjust it would make little difference, but NBS does not reveal which price indexes it uses.)

With prices falling and the domestic market unable to absorb the output, exports have been rising. According to the NBS report, exports during the first half of 2025 were up 7.2 percent from a year earlier and imports were down 2.7 percent.

Agriculture, forestry and fishing GDP grew 3.9 percent in the first half of 2025 from a year earlier. However, physical output of the two main components of agriculture produced in the first half of the year grew at slower rates. Production of meat increased 2.8 percent, while output of summer grains decreased 0.1 percent from a year earlier. Hog prices have fallen about 30 percent since reaching a peak last August, indicating excess production capacity. Yet NBS reported that the hog inventory is now up 2.2 percent from a year ago.

Most agricultural prices have also been falling. The overall index of prices received by agricultural producers was down 1.1 percent year-on-year for H1 2025. Most agricultural commodities had larger changes in prices. The producer price for grain was down 4.3 percent, oilseeds were down 4 percent, vegetables were down 6 percent, wood was down 3.9 percent, and livestock prices were down 2 percent.  Only fruit (up 9 percent) and hogs (up 1.3 percent) had increases in prices in H1 2025 (in Q2, however, hog prices were down year-on-year).

Like industrial commodities, China's agricultural prices have also had an extended run of quarterly declines. Grain prices have registered year-on-year declines 6 quarters in a row--a main reason for the cratering of grain imports over the past year. Vegetable prices have fallen in all but 2 quarters since Q4 2022. Livestock prices declined during the recovery of pork production in 2021 and during 2023. Livestock prices were down year-on-year in 6 of 9 quarters since Q3 2023. In Q2 2025 farm prices of grain were down 1.7 percent, vegetables were down 4.6 percent, and livestock prices were down 3.1 percent from year-earlier levels. 

The June 2025 Chinese CPI report showed declines in consumer prices of grains (-1.3 percent), edible oils (-2 percent), fresh vegetables (-5.3 percent), meat (-.4 percent), milk (-1.4 percent), eggs (-2.5 percent), and alcohol (-2 percent) for the first half of 2025. Fruit (up 2.7 percent), cigarettes (up 0.3 percent) and seafood (up 0.8 percent) were components of food, alcohol and tobacco that had higher prices in the first half of 2025.

China is a net importer of agricultural products. Customs data show that China's agricultural imports during the first half of 2025 were down 10.1 percent from a year earlier, and agricultural exports were up 1.8 percent. 

The NBS report says that the rural migrant labor force grew 0.7 percent to 191.39 million people in Q2 2025. Monthly earnings for rural migrants averaged RMB 4971 (about US$ 690) from an average of 48 hours. Monthly earnings for migrants grew only 3 percent from a year ago, slower than the average 5.7 percent growth in wage income. The report also says the average unemployment rate was 4.8 percent for laborers with an agricultural household registration (i.e. rural migrant workers). These figures suggest that China has nearly 9.2 million unemployed rural migrants roaming the country. 

In the first half of 2025 per capita food spending averaged RMB 4355, up 3.3 percent. This was slower than the 5.3-percent growth in total household expenditures. Food averaged 30.4% of household expenditure. 

China's June Agricultural Imports Match Last Year's Pace

China's agricultural imports during May and June 2025 were nearly identical to year-earlier values. June 2025 agricultural imports totaled $18.5 billion, up 1.9 percent from June of last year, according to data posted on the China Customs Administration web site today. May imports had been up 0.8 percent from a year earlier. The May-June 2025 pace was a reversal of the first four months of 2025 when agricultural imports fell behind last year's values. 

Data from China customs administration web site.

Data for major commodity categories show that the volume of June fruit and nut imports was up 43 percent, while meat imports were up 5 percent from a year ago. Imports of soybeans and grains continued moving in opposite directions. Soybean imports totaled 12.264 million metric tons in June, up 8 percent from a year ago, but imports of grain totaled 2.1 million metric tons, down from 47 percent June last year. Imports of edible oils were down 14 percent. 

China's soybean imports in May and June 2025 were ahead of the previous year's totals, as a large seasonal surge of Brazilian beans arrived. Imports for the first 9 months of the 2024/25 market year are running slightly ahead of the previous year's pace. Cumulative soybean imports from October 2024 to June 2025 totaled 72.6 million metric tons, exceeding the volume imported during the same period in 2023/24 by less than 1.2 million metric tons, according to China's customs data. 

Symbolic Soybean Meal Moves Ahead of Trade Tensions

Recent announcements seem to point to China becoming a soybean meal importer. Large-scale Chinese imports of soybean meal would be a change from its historical practice of importing soybeans to be processed in one of China's dozens of processing plants with annual capacity of over 150 million metric tons. 

• On July 7, Reuters reported that a 30,000-metric-ton soybean meal shipment will leave Argentine for China this month, the first major shipment since China approved Argentina as a soybean meal supplier in 2019. The shipment had been booked in late June by a group of Chinese feed millers. 
• On July 3, Chinese customs officials approved Ethiopia as a soybean meal supplier to China.
• On June 6, Chinese customs officials approved Uruguay as a supplier of soybean meal and rapeseed meal.

Argentine officials were effusive over this month's shipment and were optimistic that this would be followed by more. At least one industry analyst interpreted the Argentine shipment as a "tectonic shift" in trade patterns. Others were skeptical, interpreting the shipment as largely symbolic as China scrambles to find alternatives to U.S. soybean supplies.

Soymeal from Argentina--the world's leading soybean meal exporter--was granted access to China in 2019, but no major soymeal shipments were made until this month. 

China's customs administration had previously granted access for soybean meal imports from Kazakhstan in 2023, and access was granted for soymeal from Zambia, Belarus and Brazil in 2022. 

This month's Argentine shipment is about equal to China's annual imports of soybean meal in recent years of 30,000-to-50,000 metric tons. These imports are a drop in the bucket compared with China's imports of whole soybeans exceeding 100 million metric tons. China has actually been a net exporter of about 1 million metric tons of soybean meal in most years since it joined the WTO in 2001. Exports act as a valve to release excess meal into the market during years of slow demand or an excessive soybean crush volume. 

Data from USDA PS&D database.

China's soybean crushing industry prefers to keep the soybeans flowing. China did import soybean meal briefly in the 1990s when authorities experimented with a value added tax (VAT) waiver on imported soybean meal, but a spurt of meal imports drove down margins for Chinese crushers--who complained loudly--and the VAT waiver was quickly rescinded. Tariffs set by China's WTO membership in 2001 favor imports of beans with a tariff of 3% versus a 5% tariff for soybean meal and 15% for soybean oil. Chinese officials and official news media have complained for 2 decades about ballooning soybean imports but never imposed antidumping or safeguard duties. (China did launch an antidumping investigation of canola seed in September 2024 and a 100% duty on canola oil and meal in March of this year.)

Chinese authorities have kept soybean meal trade under tight control until now, a practice that protects the profits of the crushers. For example, in 2020 Chinese customs announced that inspectors seized a shipping container loaded with 26 tons of illegally imported soybean meal containing "multiple genetically modified ingredients and other harmful materials." The recent approvals of soybean meal importers also come with extensive requirements for foreign material, traceability, labeling, and processor certifications. 

China Customs publicity photo of inspectors checking soybean meal in 2020 at the port of Ningbo.

There may be powerful interests in China's soybean crushing who have an interest in keeping the bean imports flowing. State-owned players along with Singapore-based Wilmar's Yihai Kerry subsidiary dominate the top 10 crushers in China who account for about 85 percent of production. State-owned COFCO is the top crusher with 30 crushing facilities that it needs to keep in operation. Multinationals Cargill, Bunge, and Louis Dreyfuss have a combined market share roughly equal to COFCO's. Other state-owned crushers include Sinograin with a vast network of subsidized warehouses and storage tanks holding national reserves, and Jiusan, subsidiary of a sprawling state farm network in northeastern China that also crushes imported beans. There could be influential backers behind the 3 private Chinese companies still in the top 10. 

A Chinese commentator conjectured that the Argentine shipment is a symbolic test to signal that imports of soybean meal can help China muddle through trade tensions with the U.S. that may restrict imports of soybeans in the fall months. The commentator was doubtful that large amounts of soybean meal will be imported, noting the potential impact on soybean crushers.  The commentator warned that China's soymeal market could come under greater supply pressure with about 30 mmt of South American soybeans expected to arrive in the next 3 months.

Argentina and Brazil are the world's top soybean meal exporters, but meal from those southern hemisphere countries faces the same seasonal availability problem as their soybeans. Meal is also hard to store and stockpile. Other soybean meal suppliers recently approved by China (Belarus, Russia, Ethiopia, Kazakhstan, Uruguay and Zambia) exported a combined total of less than 1,300 metric tons of soybean meal last year, according to USDA's PS&D. So it's not clear where imports of soybean meal to tide China over would come from to replace U.S. beans if the trade spat continues into the 4th quarter of 2025.

Yesterday's quotes at China's Dalian futures market indicate expectations of a modest rise in soybean meal and soybean prices over coming months. The soybean meal futures contract for September 2025 delivery shows a 6.2-percent premium over meal delivered this month, while the December contract has an 8-percent premium over July. Soybean oil futures, in contrast, show no premium for September or December over July. Chinese cash prices for soybean oil have been flat this year. The cash price for soy oil is still below prices of rapeseed and palm oil.

Prospects for a big uptick in China's imports of soybean meal don't look promising. The Argentine soymeal shipment may have been meant to send a signal of confidence ahead of possible renewed trade tensions. The Ethiopian soymeal approval followed a Chinese meeting African nations and may have been meant to send a similar signal. 

The Chinese market indicates some concern about tighter supplies of soybean meal later this year if trade tensions with the U.S. are not resolved. But the magnitude seems modest. It helps that Chinese soybean meal prices are currently at a relatively low point due to the influx of Brazilian soybeans and tepid downstream demand. According to Shanghai Mysteel price monitoring, the average soybean meal price in early July is down about 11 percent from a year earlier. A soymeal price increase of 6-to-8 percent would not be unusual (soybean meal is one of the more volatile prices among non-perishable commodities in China) and could return the price to about where it was a year ago.

China Admits Drought Impact; Proclaims Bumper Wheat Harvest

Another bumper wheat crop of 138.16 million metric tons was proclaimed for 2025 in the "summer grain" report released by the National Bureau of Statistics. A Bureau official said the bumper harvest lays the foundation for stabilizing the year's grain output and will help China cope with the "complex and severe international situation" while promoting recovery of the economy.

The Bureau acknowledged that serious drought impacted wheat production in Shaanxi, Henan, and Jiangsu provinces but insisted that irrigation and other mitigation minimized losses. Production increased in Sichuan, Shandong, Hebei, and Hubei Provinces. An adjustment in cropping structure reduced wheat output in Xinjiang. National wheat production was down 167,000 metric tons from the previous year, a decline of less than -0.1%, according to the Bureau. 

China's Summer Grain production, 2025
Category	Item	Unit	2025	Change
Summer grains	Production	1000 metric tons	149,738.0	-153.0
	Area	1000 hectares	26,578.4	-34.7
	Yield	KG per hectare	5,633.8	1.6
of which: Wheat	Production	1000 metric tons	138,160.0	-167.0
	Area	1000 hectares	23,073.3	-17.4
	Yield	KG per hectare	5,987.9	-2.7
Summer grains include wheat, barley, oats, buckwheat, beans, cow peas, potatoes.
Source: China National Bureau of Statistics.

The Bureau said winter wheat comprised 134.5 million metric tons of the year's wheat harvest and 22.6 million hectares of wheat area. 

Other summer grains include barley, oats, buckwheat, beans, and cow peas. Overall summer grain output was 149.7 million metric tons, down 153,000 metric tons from last year. A Bureau official explained that summer grain planting was down slightly due to some switching from summer grains to fall-harvested crops. Note that China only reports planted area, not harvested area. Yields are measured by taking cuttings just before harvest; it is unclear whether survey teams would measure yields from fields where crops had failed due to drought.

The Bureau official credited Xi Jinping's leadership and local officials' implementation of food security responsibilities for the bumper harvest. The official cited the minimum price purchase policy, the cultivated farmland protection subsidy for grain farmers, crop insurance subsidies, high-standard field construction, and a spring crop-spraying program for shoring up production. 

This year's relatively low prices indicate that China has plentiful wheat supplies. China's Food and Commodity Reserve Administration data shows average wheat procurement price July 1 was about 3 percent below their level from last year. However, there has been no drop in wheat prices following the harvest that is common in normal years. The average flour price is about 4 percent below the year-ago level. The Administration has reported the same flour price for nearly 3 months.

Data from China National Food and Commodity Reserve Administration.

An Economic Daily commentary reported that 50 million metric tons of wheat have been procured so far this summer. Henan, Anhui, and Hebei Provinces have purchased a combined 1.6 million metric tons of wheat--less than 4 percent of the total procured--at the government-set minimum price to assure farmers that prices will not fall any lower. The commentator explained that the minimum price is now set every two years to build in long term expectations and prevent fluctuations and speculation.

What is this Chinese company that spawned a National Farm Security Initiative?

The Fufeng Group's acquisition of a 300-acre site in North Dakota to build a corn processing plant is routinely cited as proof that "China" has a plot to buy up American farmland. Fufeng's project was denied approval by Grand Forks officials based on concerns about spying, but its North Dakota land purchase became part of the narrative has led to growing restrictions on Chinese land ownership in the U.S., including yesterday's announcement of a National Farm Security Initiative at USDA headquarters attended by multiple cabinet secretaries. 

Since we're going to create a new national security policy based on our fear of such companies, maybe we should investigate who Fufeng is and what they're up to.

You probably have never heard of Fufeng Group (pronounced foo-fung), a company with 17,000 employees headquartered in Qingdao China that manufactures food and agricultural chemical products by fermenting corn. You may have heard of Fufeng's main product, monosodium glutamate (MSG), because it makes you dizzy when you eat at a Chinese restaurant. But you probably have never heard of xanthan gum, a thickening agent used in both food processing and petroleum refining. 

Lysine and threonine are the products Fufeng planned to manufacture in a U.S. facility. These are amino acids added to animal feed to aid in synthesis of protein in meat animals. These products are widely used in livestock production all over the world. Fufeng produces lysine and threonine at its facilities in northeastern China and sells them to both domestic and foreign customers. As we will discuss below, China is aggressively promoting use of amino acids in order to reduce use of soybean meal in feed.

China imported amino acids until the early 2000s. Now Chinese companies produce about 80 percent of the world's lysine and 95 percent of threonine, and Fufeng is a secondary player in both of these crowded industries. Fufeng is currently in the second tier of 10 major lysine producers in China. Fufeng is one of the top three threonine producers, but the industry leader's market share is about double Fufeng's. Fufeng is struggling to climb to the top of the heap in the hypercompetitive but mostly anonymous feed additive industry.

Fufeng is a privately-owned company publicly traded on the Hong Kong stock exchange and registered in the Cayman Islands. State-owned companies like COFCO, Bright Foods, Beidahuang, or the Xinjiang Production and Construction Corps have niches they dominate, but most of China's agriculture and food sector is composed of smaller private companies like Fufeng. 

In the 1990s a young employee of a small-town distillery, Li Xuechun, started the company by pooling funds with co-workers to buy a bankrupt MSG workshop next door. According to Li's account, he built the company to a national player in the MSG industry by buying up equipment from other bankrupt factories, aggressively cutting costs and engaging in brutal price wars. The company's annual report cites the plan to open a U.S. manufacturing facility as part of its ambition to become a multinational company. Despite these ambitions, the English version of its web site does not appear to work. The company's management is a family affair: Li Xuechun, his brother-in-law, and his son make up the company's top management team.

Fufeng's founder joined the communist party in 1985, but an online search turns up no other involvement in the party. There is no mention of a communist party organization in the company on its web site. Fufeng does not mention China's policy of promoting foreign investment (so-called "going out"), nor does it mention the Belt and Road Initiative. Still, no business can succeed in China without government and party ties. It is likely that Fufeng has received help over the decades that is left out of its official history--getting its listing in Hong Kong, its designation as an agricultural "dragon head enterprise", model technological company, environmental protection awards, and land acquisitions in China. 

American commentators and officials see China as a masterfully planned well-oiled machine ready to take over the world. In reality, Chinese industry is quite chaotic and hyper-competitive. Industrial policies often fall flat, and policies meant to protect one sector are often impediments to other sectors.

Fufeng produces chemicals made by fermenting corn, which currently accounts for about 55-to-60 percent of its production cost. Fufeng caught a wave of Chinese government support for corn processing industries in the early 2000s. The government lavished subsidies on the industry to chew through a glut of corn that had built up in the late 1990s. The glut was gone by 2006-07 when global grain prices spiked. The subsidies for corn processors were phased out as corn supplies became tight. The subsidies were revived during 2017-19 to dispose of another corn glut. 

Meanwhile, Chinese officials are fixated on controlling grain imports to promote self-sufficiency. A quota system aims to control imports of corn by forcing private companies like Fufeng to import corn mainly through a state-owned company that controls 60 percent of the quota. During years of high prices in 2020-23 authorities permitted large imports of corn, but China has slashed corn imports this year by about 80%. 

Chinese authorities try to manage grain prices to balance the profits of farmers against interests of livestock producers and companies like Fufeng that use corn as raw material. But ultimately China's grain policy limits access to imported corn for Fufeng and forces them to pay premium prices for raw material. Fufeng mainly processes corn procured in northeastern China at prices 40-to-50 percent higher than in the U.S. corn belt. Current corn prices in Heilongjiang and Inner Mongolia--sites for Fufeng's manufacturing facilities--are currently $7.60 to $8.00 per bushel versus about $4 per bushel in Illinois. 

Thus, the prospect of cheaper corn is a motivator for Fufeng to build a facility in the United States to serve its overseas customers. After being rejected by Grand Forks, Fufeng is now considering a site in corn-rich central Illinois for its U.S. manufacturing facility.

A more recent Chinese government initiative appears to directly benefit Fufeng's amino acid business, but the results have been underwhelming. In April 2023 China's Ministry of Agriculture and Rural Affairs (MARA) announced a 3-year action plan to promote use of amino acid additives in livestock feed in order to reduce inclusion of soybean meal. The objective is to reduce reliance on imports of soybeans and thus insulate China from reliance on the United States. Fufeng does not mention this initiative in its report or web site. Other company reports and industry analyses do cite the MARA initiative as an important factor in the amino acid additive business, but they stop short of pronouncing it to be a great business opportunity. 

MARA claims great success in substituting amino acids for soybean meal since the action plan started, but Fufeng's business performance does not indicate any amino-acid sales boom. Fufeng's revenues have been stagnant since 2022. Fufeng's 2024 annual report credited growth in exports of lysine and threonine for boosting its amino acid business during 2024 as domestic demand weakened. Fufeng's lysine sales volume fell 2.5% in 2024, the second year of the amino acid action plan. Meanwhile, China's exports of lysine were up 15%. Fufeng's threonine sales volume was up 14% in 2024, but exports of threonine were up 26%. Fufeng's competitor, Meihua Group's 2023 annual report reported a similar pattern of declining prices and sales for domestic lysine and strong export sales. Despite the MARA initiative to push use of amino acids, Chinese lysine prices dropped dramatically in the first half of 2025, according to a semiannual industry report from Chinese consultancy Boyar. 

MARA announced the amino acid action plan just before soybean meal prices crashed. Since 2023 Chinese soybean meal prices have plummeted about 30 percent, undermining the economic incentive to cut back on its use. 

Like many other Chinese industries, Fufeng and other producers of corn fermentation products expanded capacity at a frenetic pace, leading to price wars and a flood of cheap products that took over European, American and Asian markets. The U.S. and EU already had antidumping duties on Chinese MSG. Even Vietnam has antidumping duties on Chinese MSG. The blip in Chinese lysine exports during 2024 probably reflected European buyers trying to get ahead of EU antidumping duties on Chinese lysine that took effect January 2025. The U.S. launched an antidumping investigation of Chinese lysine in May 2025.  According to a U.S. Department of Commerce's antidumping announcement U.S. imports of Chinese lysine more than doubled in volume from 29,066 metric tons in 2022 to 77,934 metric tons in 2024. 

The corn fermentation products Fufeng produces are not a new innovation. They were developed and popularized during the late 20th century by a group of multinational companies based in North America, Japan, and Europe. Three of those companies filed the petition for the lysine antidumping probe in May. Interestingly, the Illinois site now being considered by Fufeng is practically in the backyard of one of the U.S. companies.

In another rhyming of history, Chinese amino acid companies appear to have engaged in the same kind of price-fixing behavior that prompted prosecutions and jail for a U.S. lysine producer in the 1990s (immortalized in the 2009 film The Informant!). According to the 2023 annual report of Meihua Group (Fufeng's competitor) the top 4 threonine producers (which would include Fufeng) agreed to fix prices after European customers cut their purchases during 2023: 

"To improve the profitability of the industry, the leading enterprises raised the price and adopted a strategy of tie-in sales. The market price of threonine was adjusted to a higher level from the third quarter onwards, causing the whole industry to make profits."

Colluding to fix prices is probably legal in China unless foreign companies do it. (In past years there were other cases where Chinese food companies agreed to price-war truces and fixed their prices at a level that would avert a U.S. antidumping investigation.)

This post is not intended to give unqualified approval to Fufeng Group or any other Chinese investor. However, by looking into Fufeng's business environment it becomes evident that the company has strong incentives besides spying to invest in a U.S. facility: to access cheap corn and overseas customers, avoid antidumping duties, and as a means of climbing to the top of the heap in a crowded, hyper-competitive industry. Spying and intellectual property theft are real threats, and in the business world it's hard to put full trust in anyone. 

Both U.S. and Chinese officials need to recognize that food markets are a lot more complex than they realize, and most of what's happening now has happened before. Ironically, with so much information available at our fingertips, in-depth research and verification of claims seems to have fallen by the wayside. It is much simpler to make national policy based on internet memes and simplified black-and-white narratives. 

Dairy imports crash as China struggles with milk glut

China's imports of milk powder have been plummeting after the country created a glut that caused Chinese milk prices to plummet 30% over the last 4 years. Subsidies stimulated expansion of China's dairy industry at the same time growth in Chinese milk consumption shifted into reverse. Imports of value-added products such as cheese and whey protein have been more robust until now, but replacing these imports is one of the main solutions Chinese dairy industry leaders are pursuing to pull the industry out of its crisis.

China's agriculture ministry held a symposium in Beijing on June 25 to discuss how to rescue China's dairy industry from plunging prices and financial losses. While it appears that excessive subsidies got the industry into the predicament in the first place, Minister of Agriculture Han Jun prodded local officials to pursue a lengthy menu of support measures that include farm and processor subsidies, credit support, breeding improvements, efforts to boost dairy consumption, and a push into value-added dairy products. 

This month's meeting comes 10 months after a similar meeting to revive the dairy and beef sectors was held in August 2024. The communist party's document no. 1 on rural policy in January 2025 called for bailouts of the dairy and beef sectors. Minister Han noted that the beef industry has seen some improvements after the Ministry of Agriculture and Rural Affairs (MARA), other departments and local authorities issued policies to rescue the two sectors. Still, Han described revival of the dairy industry as an "arduous task." 

China's milk prices continued dropping over the past year. At a February 2025 seminar on dairy industry problems held in Henan Province a dairy expert worried that there was no sign of a halt to plummeting milk prices. He judged the February milk price to be well below the cost of production. 

Prices have continued to fall since then. As of late June 2025 the average price of fluid milk was down 30 percent from its 2021 peak. Beef prices have since rebounded about 7 percent after bottoming out in March 2025. 

Average wholesale prices, China Ministry of Agriculture and Rural Affairs.

Industry experts have declared that dairy is the segment of the livestock sector suffering from the most serious difficulties, the lowest prices, the most widespread losses, and has the longest adjustment cycle. 

Experts say the dairy industry has a structural supply glut. The February seminar noted a big influx of large-scale dairy operations that has expanded capacity at the same time dairy consumption has been dropping since 2022. The government and industry are promoting production and consumption of pasteurized fresh milk as an import substitution measure meant to replace shelf-stable UHT milk produced from imported milk powder that has long dominated the industry.

The Dim Sums blog has previously highlighted the 2018 dairy revitalization initiative that kicked off the expansion, followed by a frenzy of investments by regional dairy companies that created excess capacity. The February seminar noted that Henan, Inner Mongolia, Gansu, Heilongjiang, Hebei and Shandong Provinces all issued multiple dairy industry promotion policies such as subsidies and awards, injections of bank loans in the guise of poverty alleviation, and milk advertising and promotion. 

Inner Mongolia is China's largest dairy region and home base for its largest dairy companies Yili and Mengniu and has provided perhaps the most extensive support. Inner Mongolia began with a menu of 7 dairy support policy measures in 2019 that expanded to 33 dairy measures in 2023, including 

• payments for area planted in corn silage and alfalfa, 
• subsidies proportional to number of cattle for newly built dairy farms of 3,000 head or more. 
• a per-head subsidy for imported dairy cows, 
• a subsidy covering 10% of equipment costs for newly built cheese and whey processing plants
• a subsidy for purchasing raw milk during the off-season
• 100 million yuan fund for research and development
• disease prevention and breeding programs

Inner Mongolia recently issued new subsidies for loans, insurance for raw milk, extended a subsidy for manufacturing milk powder, and added to support for breeding and processing.

After years of pushing policies that created excess capacity, this month's MARA meeting called for culling cattle to relieve China's milk glut.

At the February seminar it was noted that special safeguard tariffs for beef launched in 2024 have helped the dairy sector cut back on excess capacity. The safeguard encouraged culling of low-productivity dairy cows by slaughtering them for beef. The Dim Sums blog also observed a noticeable surge in rejections of imported beef shipments during 2024 that coincided with the beef rescue.

A May 2025 China Dairy Industry Association meeting judged that China's consumption of basic milk products has hit a bottleneck and may have peaked. At the meeting it was reported that per-capita milk consumption had declined 5.6 percent in 2024 to 41.5 kg. 

The association ignored the excess capacity issue, instead focusing on adjusting product structure to match changes in consumer preferences. Speakers at the May meeting cited a China Food and Nutritional Development Outline for 2025-2030 that encourages consumption of fresh milk (presumably in place of shelf-stable UHT milk) and dry products like cheese. While the industry has long focused on raising China's low per-capita consumption, the industry association called for adjusting the structure of products to include more high value-added products such as ready-to-eat cheese targeted at children, milk tea, products for healthy baking like whipping cream without additives, nutritional supplements targeted at the elderly, weight loss probiotics, and high protein yogurt. 

The analyses of the dairy industry ignore the halving of China's birth rate between 2012 and 2024 (which implies a parallel shrinkage in the number of young children who consume disproportionate amounts of milk). Instead, one analysis speculated that the new generation of mothers in China are more "scientific" and discerning about nutritional content when choosing products for their children. 

The May dairy association meeting noted that imports of milk powder and fluid milk have been declining, but imports of high value-added products such as cream, condensed milk and albumin have maintained their growth. 

Chinese customs data show that imports of milk powder peaked in 2021 at 2.58 million metric tons and fell to 1.36 million metric tons in 2024, a 47-percent decrease over 4 years. Imports for the first 5 months of 2025 are 615,170 metric tons, down 1 percent from the same period in 2024.

China customs administration data.

U.S. exports of dairy products to China peaked in 2022 at over $800 million and fell to $583 million in 2024, according to USDA data. In 2024 U.S. sales of nonfat dry milk were less than 20 percent of their 2022 peak value. Sales of other dairy categories have been up and down. Whey products comprise most U.S. dairy exports to China, and their sales in 2024 were down 7 percent from their 2022 peak value of $406 million. Sales of lactose products were down 35 percent from their 2022 peak. Cheese and other dairy products comprise a small portion of U.S. dairy sales to China, but their sales increased between 2022 and 2024. Sales of whey during the first 4 months of 2025 were up 20 percent from the same period in 2024. Chinese customs data for May 2025 show that China's imports of U.S. whey products were down about 9 percent from a year earlier. 

USDA Global Agricultural Trade System data.

The dairy industry mess reflects the outcome of Xi Jinping's "Socialism with Chinese Characteristics" that boasts of its ability to seamlessly entwine government planning with a market composed of companies working hand in hand with government technocrats. 

The MARA symposium this month was attended by a mix of dairy and biotech companies with ties to provincial or local governments (such as Modern Dairy, Feihe Dairy, Gansu Pastoral Grass Industry Co.), a pair of dairy conglomerates (Yili and Mengniu), provincial animal husbandry departments, university professors, and agriculture ministry officials. 

Chinese socialism treats industrial planning as an engineering task with multiple bells and whistles (monitoring of statistical indexes composed of dozens of inaccurate or fake data series) and buttons and levers bureaucrats can manipulate (subsidies, industry standards, bank loans, access to land and equity markets). The market is carved up into regional chunks with each company approaching local officials to beg for investment while showing them a powerpoint about their company's alignment with the 5-year plan. Favored companies get access to bank loans and equity markets. They never have to worry about going out of business unless they are caught up in a scandal that requires a sacrificial offering or they get in with the wrong political faction. Everyone expands production, impinges on markets outside their region, and cut-throat competition breaks out. 

Meanwhile, no bureaucrat can admit that demand might not follow their projections, nor could they admit that the projections were based on inaccurate or fake data. A downturn in the Chinese economy, plunging birth rates, and the possibility of a raging disease epidemic are definitely not included in the "opportunities and risks" matrix. 

Once they've gone down the alley of creating production capacity that exceeds demand, technocrats improvise by buying up and storing surplus products, raising import barriers, ordering up bank loans to bail out troubled companies, giving companies cash-generating business opportunities in unrelated sectors, etc. These measures become more challenging when many other sectors are facing similar overcapacity problems and only a few coins are left in the piggy bank. 

At this point China's dairy technocrats are desperately pushing buttons and pulling levers. Agriculture Minister Han Jun last week summed up the dairy rescue symposium by ordering local officials to implement subsidies as soon as possible, continue providing credit support, strengthen dynamic monitoring and support for dairy farms, reduce production capacity in an orderly manner, curb new additions of capacity, and boost of producers' confidence. He recommended measures addressing every aspect of the dairy industry:

• use multiple measures to boost milk consumption
• raise peoples' awareness of health benefits of drinking milk
• guide companies to implement the new standard for pasteurized milk
• provinces should promote consumption of milk in schools
• push dairy processors to upgrade their product mix and plant infrastructure to include high-value products
• raise quality across the entire supply chain
• reduce use of grains in dairy farming
• shore up dairy cattle disease prevention and control
• integrate farms with processing companies
• replace imported breeding cattle with domestic cattle
• accelerate a company-led dairy herd improvement mechanism
• vigorously promote breeding R&D 

If this sounds vaguely similar to the North American and European dairy industries during the 20th century, you might conclude that Socialism with Chinese Characteristics is actually not all that unique.