Analysis: China seeks to milk the milk market but does not have enough cows

China has come to crave milk. Demand that had been growing steadily rose further after doctors touted its health benefits amid the coronavirus pandemic and dairy businesses across the country embarked on a farm-building frenzy.

But quenching that thirst will be problematic, not least because it will be difficult to find the millions of additional cows needed for the planned new and expanded farms.

China is the world’s third largest producer of milk, but last year’s 34 million tonnes of production met only about 70% of national needs. To complicate matters, feed costs are soaring over several years, while land and water are also scarce, making the country an expensive place to produce milk.

Spurred on by near-record prices for raw milk prices and government subsidies, just over 200 new Chinese dairy farm projects were announced last year, according to consulting firm Beijing Orient Dairy.

His analysis shows that 60% of the new projects are targeting more than 10,000 cows and in total, plans call for the addition of some 2.5 million cows – about half of China’s current dairy herd – in the coming years. .

At first glance, the Chinese dairy market, which accounts for some $ 62 billion in annual sales, is ripe for development. The government has heavily promoted milk and its benefits – in part to support the rural dairy industry – by stimulating consumption. Even so, the annual per capita consumption is only 6.8 liters, compared to 50 liters in the United States, according to Euromonitor International.

“Average per capita consumption is still very low,” Gao Lina, CEO of China Modern Dairy Holdings Ltd (1117.HK), told Reuters. “The potential is huge.”

She said the Chinese, especially children, have started to eat more cheese, which will further inflate demand. A kilogram of cheese typically requires 10 kilograms of milk to be made.

Milk in China, however, is still considered special enough to be a popular gift. Fresh milk costs around $ 2 per liter, about double the UK and US prices, while the more common 240ml packs of UHT milk at room temperature cost around 40 cents.

The demand for chilled fresh milk in particular, which accounts for only a fifth of milk sales in China, has grown rapidly, climbing 21% in the first 11 months of 2020 compared to 10.9% for milk in China. ambient temperature, based on Nielsen data.

To meet this demand, big players will need to develop more sources of raw milk closer to wealthier population centers, analysts say.

SEND THE COWS

Among the companies with big plans is Modern Dairy, which aims to double its herd over the next five years to 500,000 by buying out smaller farm businesses and building new farms.

Shanghai-based processor Bright Dairy and Food Co Ltd (600597.SS) aims to build four more farms to add 31,000 cows to its herd of 66,000. China Youran Dairy is considering an IPO, seeking up to $ 800 million to expand its breeding herd and increase milk production.

According to Beijing Orient Dairy, new Chinese farms requiring a total of 1.35 million cows are already under construction, but some of them will have to be left empty.

He estimates that over the next two years, China’s domestic herd will generate around 500,000 new heifers while imports could reach around 400,000 if the pace of imports remains the same as last year when China imported. nearly 200,000 heifers, mainly from Australia and New Zealand. .

Importing heifers is the fastest way to stock a new farm, saving about a year in the time it would take to raise livestock at home. Imports are also favored because the cattle are free from the many diseases circulating in the Chinese herd.

But clouding that outlook was New Zealand’s decision in April to halt live cattle exports within two years amid concerns about the welfare of livestock on ships for long periods of time.

“We have been inundated with inquiries, especially as New Zealand is shutting down the trade,” said an Australian cattle exporter who declined to be identified, adding that growing demand from China is encouraging ranchers. to spend more on livestock.

Chile and Uruguay also export small volumes, but shipping times are twice as long and the breeds used produce less milk, making them less attractive options.

Brazil, the United States and European countries could become good sources of breeding cattle, said Dou Ming, chief economist of Beijing Orient Dairy.

“If we just added two more importing countries it would be fine,” he said.

China and the United States have pledged to begin talks on imports of breeding cattle within a month of the Phase 1 trade deal signed in January 2020, but it is not yet known whether talks have started.

The office of the U.S. Trade Representative, China’s Ministry of Commerce and General Customs Administration did not respond to requests for comment.

Feed costs, however, present another hurdle, analysts and industry sources say, as imported heifers take a long time to become dairy cows.

Corn prices are at record highs, while hay and grass are also expected to become more expensive as they compete for acres with corn, said Grant Beadles, Chinese director of Land O Lakes, which supplies feed and forage seeds at the market.

($ 1 = 6.4496 Chinese yuan)

Our standards: Thomson Reuters Trust Principles.


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About Christopher Easley

Christopher Easley

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