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.