Dairy and Products Annual 2012

An Expert's View about Dairy Products in China

Posted on: 10 Nov 2012

An increase in dairy herd numbers and use of high-quality forage is increasing China’s domestic fluid milk production.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 10/19/2012 GAIN Report Number: 12064 China - Peoples Republic of Dairy and Products Annual Annual Approved By: Melinda Meador Prepared By: Ryan Scott and Zhang Jianping Report Highlights: An increase in dairy herd numbers and use of high-quality forage is increasing China’s domestic fluid milk production. Domestic consumer preference for safe, reliable products continues to support estimates of higher 2013 imports of 14.35 MMT, benefitting the primary suppliers from the European Union. U.S. producers, China’s largest supplier of non-fat dry milk powder, should continue to see export opportunities grow as Post forecasts a 16 percent growth in NFD milk imports to 230,000MT. Price advantage over whole milk powder, rising consumer and industrial demand and small domestic production will continue to influence the orders for NFD milk imports. Nevertheless, demand for whole milk powder, continues a steady upward trend, with favorable global prices and safe product requirements, influencing import demand. China’s whole milk powder exports are expected to rise by 10 percent in 2012 to 11,000 MT, primarily to Hong Kong and small African and southeast Asian countries. Dairy, Milk , Fluid 2011 2012 2013 China Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 Market Year Begin: Jan 2013 USDA N U SD A Of f ic ia l N ew Pos tew Pos USDAt New Post Offic ial Offic ial Cows In Milk 7,620 7,620 8,000 8,000 8,400 (1000 HEAD) Cows Milk Production 30,700 30,700 32,350 32,500 34,380 (1000 MT) Other Milk Production 1,280 1,280 1,355 1,350 1,426 (1000 MT) Total Production 31,980 31,980 33,705 33,850 35,806 (1000 MT) Other Imports 41 41 55 78 100 (1000 MT) Total Imports 41 41 55 78 100 (1000 MT) Total Supply 32,021 32,021 33,760 33,928 35,906 (1000 MT) Other Exports 25 25 28 28 30 (1000 MT) Total Exports 25 25 28 28 30 (1000 MT) Commodities: Dairy, Dry Whole Milk Powder DaFiry, Milk, Fluid luid Use D om. Consum. 12,600 12,600 13,400 13,460 14,350 (1000 MT) Dairy, Milk, Nonfat Dry Factory Use Consum. 19,396 19,396 20,332 20,440 21,526 (1000 MT) Fluid Milk PS&D table Feed Use Dom. Consum. 0 0 0 0 0 (1000 MT) Total Dom. Consumption 31,996 31,996 33,732 33,900 35,876 (1000 MT) Total Distribution 32,021 32,021 33,760 33,928 35,906 (1000 MT) CY Imp. from U.S. 0 0 0 3 4 (1000 MT) CY. Exp. to U.S. 0 0 0 0 0 (1000 MT) TS=TD 0 0 0 (Data in this report is not official USDA data. Official data is available at http://www.fas.usda.gov/psdonline) Production: China’s 2013 fluid milk production is expected to rise by five percent to 34.4MMT based on a six percent growth in the dairy herd to 8.4 million head. To better manage higher production under tight domestic resources (land and water) and higher costs (feed grains and labor), China’s commercial dairy industry is focusing on improving yields. Industry sources report the sector is incorporating elevated animal feed products, such as alfalfa and other high-quality forages, to augment fluid milk results. Due to these favorable results, Post raised its 2012 production estimate to 33.8 MMT. The Chinese government is expected to support industry efforts by allocating RMB1.2 billion ($333.3 million) to alfalfa production improvements and will continue genetic research on breeding milk cows. The trend in increased alfalfa use should positively impact US producers who currently supply 95 percent of China’s total imports. Prices: Domestic milk prices remain stable in 2012. From January-July 2012, the average farm-gate price increased by four percent compared to 14 percent during the same time in 2011 (what happened in 2011 to drive the prices up that isn’t happening in 2012 which caused prices to be stable). Consumption: China’s 2013 fluid milk product consumption is forecast to increase by six percent to 14.35 MMT over 2012’s revised estimate. This increase will largely be met through imports. Three factors can be linked to this import increase: (1) wealthy consumers favor imported milk products as safer than domestic dairy products, (2) urban consumers prefer pasteurized fresh milk, and (3) Chinese schools and military programs opt for ultra high temperature (UHT) milk products. Trade Import: Largely due to an increase in domestic demand, China’s fluid milk imports are forecast to reach a record high of 100,000 MT, a notable rise over Post’s revised 2012 import estimate of 78,000 MT, based on shipments to date. Germany, New Zealand, and Australia are the top three suppliers of China’s fluid milk imports, accounting for nearly 83 percent of China’s total imports. Germany’s market share outpaced New Zealand this year due to price competition. New Zealand’s current export price to China of $1,870 per ton is more than double Germany’s export price of $792 per ton. Export: China’s 2013 fluid milk exports are forecast to increase by seven percent to 30,000 MT, largely due to higher demand in Hong Kong. Non-Fat Dry Milk PS&D Table Chart 3: China's Nonfat Dry Milk Production and Imports 2003-2012 200 (For official USDA data, please visit http://www.fas.usda.gov/psdonline) 150 Production: 100 Due to a low number of processing plants, China’s 2013 production of non-fat dry (NFD) milk is expected to remain limited, and is forecast to rise by only two percent to 58,000 MT. 50 Consumption: FAS/Beijing estimates NFD consumption at 288,000MT, up 12 percent from the r0evised 2012 estimate, due to NFD’s current import price advantage over whole milk powder. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Production 83 68 60 55 58 53 54 55 56 57 Imports 51 61 55 62 40 55 70 91 130 195 (Source: USDA official data and FAS Beijing's forecast for 2012) (1 ,0 0 0 MT) 2011 2012 2013 Market Year Begin: Jan Market Year Begin: Jan Market Year Begin: Jan 2011 2012 2013 USDA Offic ial New Post USDA New Post USDA New Post Offic ial Offic ial Beginning Stocks 80 80 50 50 60 (1000 MT) Production 1,100 1,100 1,155 1,155 1,210 (1000 MT) Other Imports 320 320 332 420 480 (1000 MT) Trade: Total Imports 320 320 332 420 480 (1000 MT) Imports: DueT to otal Supply 1,500 1,500 1,537 1,625 1,750 (1000 MT) continued expectations that NFD’s price advantage over whole milk powder (WMP) will come into 2013, Post forecasts 2013 imports will increase by 16 percent to 230,000MT over the revised 2012 estimate. The upward revision in the 2012 figures also reflects this trend as NFDM prices, which are running $146/ton less Oth r Exp rts 9 9 12 10 11 (1000 MT) than the whole milk powder price per ton of $3,531, continue to attract buyers. TheT United States is the second largest supplier of non-fat dry milk products to China. From January to August otal Ex rts 9 9 12 10 11 (1000 MT) 2012, U.S. exports reached $1.06 million compared to $907,000 during the same period in 2011. New Zealand is a strong competitor for market share with the United States. Human Dom. Consumption 1,433 1,433 1,489 1,548 1,683 (1000 MT) Exports: With little domestic production, China does not have exportable supplies of non-fat dry milk. Other Use, Losses 8 8 6 7 6 (1000 MT) WhTo otal Dom. Consumption 1,441 1,441 1,495 1,555 1,689 (1000 MT) le Milk Powder PS&D Table Total Use 1,450 1,450 1,507 1,565 1,700 (1000 MT) Ending Stocks 50 50 30 60 50 (1000 MT) Total Distribution 1,500 1,500 1,537 1,625 1,750 (1000 MT) CY Imp. from U.S. 0 0 0 0 0 (1000 MT) CY. Exp. to U.S. 0 0 0 0 0 (1000 MT) TS=TD 0 0 0 (For official USDA data, please visit http://www.fas.usda.gov/psdonline) Production: China’s 2013 production of whole milk powder (WMP) is forecast at 1.21 MMT, an increase of five percent from 2012 as domestic demand for processed products, including infant formula, continues strong growth. Consumption: Despite NFD’s current price advantage, consumption for WMP is expected to increase by nine percent to 1.68 MMT as import demand from consumers, food processors, and ice cream manufacturers, maintains its steady upward trend. Trade: Imports: China’s whole milk powder imports in 2013 are forecast at 480,000 MT, an increase of 12 percent over 2012’s upward revision by 88,000MT to 420,000MT. The shift reflects the impact of affordable global prices. For example, from January-August 2012, whole milk powder’s average import price was $3,531/ ton, a drop of $108/ ton compared to the same period in 2011. Continued media reports of unsavory domestic production practices also continue to sway consumers toward imported products. For instance, China manufactures allegedly used industrial-grade gelatin from leather shoe factories in yogurt products. Exports: Whole milk powder exports in 2013 are forecast at 11,000 MT, up ten percent due to additional demand from Hong Kong and small African and Southeast Asian countries. The 2012 export estimate is revised downward reflecting currency implications of the Chinese currency against the U.S. dollar making China’s exports less price competitive. Other Updates: Whey China domestic whey production is almost nil. From January to August 2012, the average import price increased by 28 percent to $1,981 per ton compared to the same period last year. The United States is China’s primary whey supplier, accounting for nearly half of China’s total imports. France and Germany are the second and third largest suppliers at 15 percent and seven percent, respectively. Trade Policy: September 2012: China placed a ban on adding colostrums to infant formula milk powder or infant foods. October 2012: Chinese government agencies warned Chinese consumers that on-line dairy products are not completely safe because they are not inspected prior to arrival. Related Reports: Dairy and Products Semi-annual: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Dairy%20and%20Products%20Semi- annual_Beijing_China%20-%20Peoples%20Republic%20of_5-15-2012.pdf
Posted: 10 November 2012

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