Dairy and Products Semi-annual

An Expert's View about Dairy Products in China

Posted on: 27 May 2012

China’s MY 2012 cow milk production forecast has been increased to 32,350 thousand metric tons (MT), up nearly 1% from the previous forecast.

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: 5/15/2012 GAIN Report Number: CH12034 China - Peoples Republic of Dairy and Products Semi-annual Semi-Annual Approved By: Laura Scandurra Prepared By: Zhang Jianping Report Highlights: China’s MY 2012 cow milk production forecast has been increased to 32,350 thousand metric tons (MT), up nearly 1% from the previous forecast. Whole milk powder (WMP) production is forecast at 1.16 MMT, which is 4% lower than the previous forecast. The forecast for non-fat dry milk (NFD) production remains unchanged at 57,000 MT. Import demand remains firm, despite slower economic growth. NFD imports are forecast to increase 38% to 180,000 MT and whey imports are expected to increase at least 30% to 445,000 MT. Table of Contents PS&D Tables ..................................................................... Error! Bookmark not defined. Fluid milk PS&D table ................................................... Error! Bookmark not defined. Nonfat dry PS&D table .................................................. Error! Bookmark not defined. Whole milk powder PS&D table ...................................... Error! Bookmark not defined. Production ........................................................................ Error! Bookmark not defined. Dairy Cow Numbers and Fluid Milk Production .................. Error! Bookmark not defined. Milk Price Table ............................................................ Error! Bookmark not defined. Nonfat Dry (NFD) Milk Powder ....................................... Error! Bookmark not defined. Whole Milk Powder (WMP) ............................................. Error! Bookmark not defined. Consumption .................................................................... Error! Bookmark not defined. Trade ................................................................................ Error! Bookmark not defined. Imports: ..................................................................... Error! Bookmark not defined. Exports ...................................................................... Error! Bookmark not defined. PS&D Tables Fluid milk PS&D table Dairy, Milk, Fluid 2010 2011 2012 China Market Year Begin: Jan 2010 Market Year Begin: Jan 2012 USDA New USDA New USDA New Official Post Official Post Official Post Cows In Milk 7,320 7,320 7,620 7,620 7,975 8,000 (1000 HEAD) Cows Milk Production 29,300 29,300 30,700 30,700 32,150 32,350 (1000 MT) Other Milk Production 1,228 1,228 1,280 1,280 1,350 1,355 (1000 MT) Total Production 30,528 30,528 31,980 31,980 33,500 33,705 (1000 MT) Other Imports 16 16 33 41 40 55 (1000 MT) Total Imports 16 16 33 41 40 55 (1000 MT) Total Supply 30,544 30,544 32,013 32,021 33,540 33,760 (1000 MT) Other Exports 22 22 25 25 28 28 (1000 MT) Total Exports 22 22 25 25 28 28 (1000 MT) Fluid Use Dom. Consum. 12,060 12,060 12,590 12,600 13,140 13,400 (1000 MT) Factory Use Consum. 18,462 18,462 19,398 19,396 20,372 20,332 (1000 MT) Feed Use Dom. Consum. 0 0 0 0 0 0 (1000 MT) Total Dom. Consumption 30,522 30,522 31,988 31,996 33,512 33,732 (1000 MT) Total Distribution 30,544 30,544 32,013 32,021 33,540 33,760 (1000 MT) CY Imp. from U.S. 0 0 0 0 0 0 (1000 MT) CY. Exp. to U.S. 0 0 0 0 0 0 (1000 MT) TS=TD 0 0 0 0 0 0 (Data included in this report is not official USDA data. Official USDA data is available at http://www.fas.usda.gov/psdonlineonline) Nonfat dry PS&D table Dairy, Milk, Nonfat Dry 2010 2011 2012 China Market Year Begin: Oct 2010 Market Year Begin: Oct 2012 USDA New USDA New USDA New Official Post Official P ost Official Post Beginning Stocks 0 0 0 0 0 0 (1000 MT) Production 55 55 56 56 57 57 (1000 MT) Other Imports 89 89 118 130 140 180 (1000 MT) Total Imports 89 89 118 130 140 180 (1000 MT) Total Supply 144 144 174 186 197 237 (1000 MT) Other Exports 0 0 0 0 0 0 (1000 MT) Total Exports 0 0 0 0 0 0 (1000 MT) Human Dom. Consumption 144 144 174 186 197 237 (1000 MT) Other Use, Losses 0 0 0 0 0 0 (1000 MT) Total Dom. Consumption 144 144 174 186 197 237 (1000 MT) Total Use 144 144 174 186 197 237 (1000 MT) Ending Stocks 0 0 0 0 0 0 (1000 MT) Total Distribution 144 144 174 186 197 237 (1000 MT) CY Imp. from U.S. 14 14 19 21 23 28 (1000 MT) CY. Exp. to U.S. 0 0 0 0 0 0 (1000 MT) TS=TD 0 0 0 0 0 0 (Data included in this report is not official USDA data. Official USDA data is available at http://www.fas.usda.gov/psdonlineonline) Whole milk powder PS&D table Dairy, Dry Whole Milk Powder 2010 2011 2012 China Market Year Begin: Jan 2010 Market Year Begin: Jan 2012 USDA New USDA New USDA New Official Post Official Post Official P ost Beginning Stocks 110 110 80 80 50 50 (1000 MT) Production 1,030 1,030 1,100 1,100 1,200 1,155 (1000 MT) Other Imports 326 326 350 320 375 342 (1000 MT) Total Imports 326 326 350 320 375 342 (1000 MT) Total Supply 1,466 1,466 1,530 1,500 1,625 1,547 (1000 MT) Other Exports 3 3 9 9 11 12 (1000 MT) Total Exports 3 3 9 9 11 12 (1000 MT) Human Dom. Consumption 1,373 1,373 1,463 1,433 1,556 1,499 (1000 MT) Other Use, Losses 10 10 8 8 8 6 (1000 MT) Total Dom. Consumption 1,383 1,383 1,471 1,441 1,564 1,505 (1000 MT) Total Use 1,386 1,386 1,480 1,450 1,575 1,517 (1000 MT) Ending Stocks 80 80 50 50 50 30 (1000 MT) Total Distribution 1,466 1,466 1,530 1,500 1,625 1,547 (1000 MT) CY Imp. from U.S. 1 0 0 0 0 0 (1000 MT) CY. Exp. to U.S. 0 0 0 0 0 0 (1000 MT) TS=TD 0 0 0 0 0 0 (Data included in this report is not official USDA data. Official USDA data is available at http://www.fas.usda.gov/psdonlineonline) Chart 1: China's Milk Production and Cows in Milk 2002-2011 (1,000 MT; 1,000 Head) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 Production 5,000 Dairy Cow Numbers and Fluid Milk Production 0 The number of dairy cows in milk is forecast to increase to 8 million head in CY 2012, up 25,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 head from Post’s previous forecast. The number for CY 2011 remains unchanged at 7.62 million head. Although small producers are continuing to withdraw from the sector, the number of large National Cows in Milk Cow Milk Production operators is increasing. These operators are constructing larger and more modern commercial farms and importing breeding cows to access improved genetics. According to the Ministry of Agriculture (MOA), the percentage of dairy farms with an annual inventory at or above 100 head reached 28% by the end of 2011, up 17% from the previous year. Although detailed 2011 data on the size of dairy farms is not yet available, data from the past four years supports the general trend toward a growing numbers of farms with at least 50 head and declining numbers for farms with less than 50 head. Cow milk production in 2012 is forecast at 32,350 thousand metric tons (MT), which is nearly 1% percent higher than the original forecast. Factors contributing to the slight increase include a slight upturn in per cow production, partly driven by improved feed. China’s larger and more modern farms are responding to the upward trend in milk prices, and the premium for quality, by adding alfalfa and other forage to feed rations, which is having an impact on productivity per cow. Alfalfa and other forage imports from the United States, the dominant supplier, increased 25% to 276,478 MTs in 2011. During the first quarter of 2012, total imports from the United States (accounting for 96% of China’s total imports) reached 91,690 MTs, a 95% increase over the level imported during the same time period the previous year. Future import levels will be partly dependent on the success of the central government in encouraging domestic alfalfa production. During the 12th Chart 2: China's Milk Prices at the Farm Gate 2009-2011 (U.S.$1.0=RMB6.30) (RMB/KG) 3.60 Five-Year-Plan (2011-2015), the central government plans to invest RMB1.2 billion ($333.3 million) to improve domestic alfalfa production. .40 According to the China Feed Industry Association, domestic ruminant feed production during January- Februa 3.20ry 2012 increased about 16 percent, as compared to the same period the previous year. In addition, the natural grass harvest in 2011 hit a record, surpassing the one billion metric ton (MT) mark. Anothe 3.00r factor encouraging domestic production is the expansion of the central government’s dairy cow insurance subsidy scheme. As of January 1, 2012, the central government’s insurance scheme for dairy cows, which is a relatively new program, was extended beyond the major producing areas2 to include the .80 entire country. Under the terms of the scheme, the central government pays 40% of the total insurance payment, while local provincial governments in the eastern region pay 30 percent and the farmers pays the remaining 30%. For provinces in the Western part of China, the central government p2ays 65.%. 6The 0 difference in central government subsidy levels largely reflects the relative wealth of the eastern and western regions. 2.40 The target for raw milk production set by China’s 12th Five-Year-Plan (2011-2015) is 50 MMT by the end of 2015. However, limited land resources, increasingly strict environmental protection and food safety requirements, and higher production costs, including higher wage rates, will constr2ain the. gro2wth 0 of dairy production in the future. The rate of increase in production has fallen from nearly 30% in 2003 to an estimated 5% in 2012. 2.00 Source: The Ministry of Agriculture 01/ 2009 03/ 2009 05/ 2009 07/ 2009 09/ 2009 11/ 2009 01/ 2010 03/ 2010 05/ 2010 07/ 2010 09/ 2010 11/ 2010 01/ 2011 03/ 2011 05/ 2011 07/ 2011 09/ 2011 11/ 2011 Milk Price Table Table 2: China's Average Milk Prices at the Farm Gate , 2008-2011 (RMB/KG, $1=RMB6.30) MONTH 2009 2010 2011 % Change 2010/09 January 2.79 2.79 3.22 15.41 February 2.74 2.83 3.24 14.49 March 2.69 2.84 3.25 14.44 April 2.65 2.87 3.25 13.24 May 2.61 2.91 3.26 12.03 June 2.59 2.93 3.28 11.95 July 2.60 2.96 3.29 11.15 Au Chart 3: China's Nonfat Dry Milk Production and Imports (TMT)gust 2.60 3.00 3.29 9.67 September 2.61 3.04 3.31 8.88 October 2.65 3.08 3.32 7.79 November 2.68 3.14 3.33 6.05 December 2.75 3.18 3.34 5.03 Source: The Ministry of Agriculture collected from over 400 markets of farm produce 140 Nonfat Dry (NFD) Milk Powder 120 China’s CY 2012 NFD milk powder production is forecast unchanged1 at 57,000 M0T. NFD is not a traditional domestic product and very few processing plants have the facilities8 to prod0uce it. Although total NFD milk powder production in CY 2012 will increase by an estimated two percent, NFD’s share of total milk powder production continues to fall and now stands at five perce6nt of t0otal milk powder production. 40 20 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Production 72 83 68 60 55 58 53 54 55 56 Imports 35 51 61 55 62 40 55 70 91 130 Whole Milk Powder (WMP) China’s WMP production is forecast at nearly 1.16 MMT in CY 2012, which is 45,000 MTs or 4% lower than Post’s previous forecast. The main reasons are: China closed over 30% of small processing plants in 2011 due to safety concerns. Most of them either produced WMP or used WMP to produce other dairy products; part of the demand for WMP is reportedly being filled by NFD; Chart 4: China's Whole Milk Powder Production and Imports (TMT) 1200 1000 800 600 WMP stock levels are being drawn down to meet consumption demand; and, 400 Demand for traditional yogurt, which is mainly produced from WMP, is expected to fall after press reports of it being produced with industrial-grade gelatin derived from leather from shoe factories. 200 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Production 577 750 832 918 1,030 1,150 1,120 977 1,030 1,100 Imports 77 91 91 65 74 59 46 177 326 320 Consumption Ongoing urbanization and economic growth will continue to drive dairy consumption in 2012. The urban population reached 691 million in 2011 accounting for 51.3 percent of the total population, up from just 26 percent in 1990. During the first quarter of 2012, the per capita income of urban residents jumped 14 percent to RMB 6,796 (US $1,079). Rural residents experienced a 17% increase to RMB 2,560 (US $406). After adjusting for inflation, real per capital income growth was 9.8 and 12.7 percent, respectively. Fluid milk consumption is forecast at 13.4 MMT, a 2% higher than Post’s previous forecast. Consumer demand for pasteurized milk due to preference for freshness in urban areas is stronger than previously expected. Fluid milk consumption for 2011 was revised 10,000 MTs higher due to larger imports. The 2012 consumption estimate for NFD milk powder, which is largely used for producing infant formula, is now forecast at 237,000 MT, an increase of 20% from the previous estimate. Although import prices were up approximately 11% during the first quarter of 2012, imports still satisfy approximately three-quarters of total demand. WMP consumption is now forecast to increase 4% to 1.51 MMT, which is 59,000 MT lower than the previous forecast. Relative pricing between NFD milk powder and WMP is the major factor driving the drop in demand for WMP. A string of melamine scandals during the second half of 2011, involving plants using contaminated WMP left over from 2008, has also driven some processors to turn to imported NFD. Chart 5: China's Dairy Product Import Value Shares Jan-Dec, 2011 (US$1,000) Chart 6: China's Nonfat Dry Milk Imports from the United States and New Zealand Cheese Fluid Milk 2000-2011 (Metric Tons) Nonfat Dry 6% 2% 80 18%,000 Whey 70,000 22% Trade 60,000 Whole Milk Imports: F Powderluid milk imports for 2012 are forecast at 55,000 MT, which is 50,000 15,000 MT higher than Butter and 48% Post’s previous forecast. On-going food safety concerns are continuing to drive wealthy Spreads consumers to imported fluid milk. New Zealand, 40,000 Ge 4%rmany and Australia are the three top suppliers of fluid milk to the Chinese market accounting for nearly 85% of China’s total imports. There are also opportunities for U.S. 30,000 suppliers and U.S. market share is expected to increase from 0.2 to approximately 3 percent. NFD 20,000 imports for 2012 are forecast at 180,000 MT, which is 40,000 MT higher than the previous forecast. Although the average import price of NFD milk increased 11 percent during the first quarter of 2012 compared to the same period last year, it is still $157/MT less expensive than WMP. The price differential is driving demand for NFD milk powder. 10,000 - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 New Zealand T 8,769 8,403 18,19 20,89 26,97 22,31 36,05 19,30 18,12 46,51 48,63 69,19 United States T 832 2,106 1,239 2,447 4,565 5,910 13,10 6,520 15,60 6,012 14,11 21,36 Despite a 4% increase in U.S. NFD milk powder exports to China, the U.S. export market share is shrinking due partly to competition from New Zealand, which benefits from a bilateral Free Trade Agreement signed on April 7, 2008. Under the terms of the agreement, China’s tariff on imports of NFD milk powder imported from New Zealand have been reduced from 15% in 2008 to 6.7% in 2011. The tariff is scheduled to decline further to 5.8% in CY 2012. By contrast, the tariff on U.S. imports of NFD milk powder is 10% in 2012. WMP imports in 2012 are forecast at 342,000 MT, which is 33,000 MT lower than the previous forecast. The decrease is mainly attributable to a decline in demand from smaller Chinese processing plants as international price levels have put WMP out of their reach. These processors are turning to NFD milk imports and WMP domestic stocks. China’s whey imports in 2012 are forecast to increase 30 percent to 445,000 MT due to strong demand from China’s domestic infant formula, food processing and feed production industries. The United States is expected to continue to be the dominant supplier of whey to the Chinese market accounting for nearly half of total imports. France and Argentina are the second and third largest suppliers accounting for 15% and 6% of China’s total imports, respectively. Argentina’s exports jumped to 16,803 MTs in 2011 from 4,805 MT the year before. Strengthened bilateral dairy industry exchanges and falling prices for Argentine whey have helped exports. Exports The estimate for China’s 2012 fluid milk exports remains unchanged at 28,000 MT. Hong Kong continues to be the main export market. China’s fluid milk exports have still not recovered from the 2008 melamine scare. WMP exports for 2012 are forecast at 12,000 MT, which is 1,000 MT higher than the previous forecast. (End of the report)
Posted: 27 May 2012

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