After years of rapid growth, Chinese dairy demand is slowing as the market matures, and now exporters should look to South East Asia, according to a Chinese-based dairy analyst.
While sales of higher value products like yogurt are growing 15 per cent annually, growth in white milk has been stagnant.
“There are a number of reason behind that, China’s entered into a new normal in terms of economic growth,” Shanghai-based Rabobank China dairy analyst Sandy Chen said.
“Secondly I think that after many years of rapid growth in dairy consumption in China between 2000 and 2008 what we’re seeing s maturing in certain categories.”
In the first four months of 2017, liquid milk imports dropped by 14 per cent, the first decline in many years.
Mr Chen said for 2016, imports accounted for 20 per cent of the Chinese dairy market, a figure he expects to remain stable for the next five years.
Health is playing a big role in what products are growing, and what is being left on the shelf, for instance yogurt’s ‘healthy halo’ is driving its growth.
But the spotlight is fading on popular flavoured milk drinks, according to Mr Chen.
“Because of the negative health perceptions and aging product profile it’s been a declining trend over the last two or three years.”
Alternative markets
Mr Chen said although China will always need dairy imports, there are other markets that offer more growth.
In China demand will grow between two and 2.5 per cent a year for liquid milk, but South East Asia will growth faster.
“There is a large population, per capita consumption of milk is lower than in China, and economic growth has been quite solid,” Mr Chen said.
“These are possible alternative markets the Australian industry should be looking at and certainly not ignore.”
Australia already has a strong presence in South East Asia, with China, Japan, Indonesia, Singapore and Malaysia ranking as Australia’s top five export destination in 2015/16, according to Dairy Australia.
The fasting growing markets were still China (including Hong Kong and Macau) and Malaysia.
Improving price outlook
A Department of Agriculture forecast earlier in June pointed to rising farmgate milk prices “reflecting higher world prices and intense competition between milk processors to maintain market share”.
A recent Rabobank report is also estimating farmgate prices to rise to between $5.40 and $5.80 a kilogram of milk solids (kgms) by the end of the season.
“That’s broadly in line with where we’ve seen opening prices and where the we’ve seen early indications of closing prices,” said Rabobank Australia dairy analyst Michael Harvey.
“There is a big spread because different processors have different product mixes.”
The removal of European subsides, a Russian trade ban and slowing Chinese demand saw global dairy prices diving throughout 2015, but they’ve been recovering since.
Mr Harvey says the dark clouds across the sector are clearing but not gone.
“The Russian trade ban hasn’t changed in terms of its role in the global supply and demand balance,” he said.
“From a positive point of view, China has worked through a lot of the inventory carrying going into the cycle, which is why there’s some growth, although low.
“It’s now been over two years since the EU removed quotas, we are still production growth, but it’s going to be subdued because there are some hard constraints on it reaching the same pace again.”
Source: ABC Rural