China's consumption of whole milk powder has risen from 900,000 tons to over 1.7 million tons within 5 years. An increase of 12% is expected for the current year 2013 alone. In-house production cannot keep up with this increase in consumption. The peak demand is therefore being covered by increasing imports. In 2013, this will be around 100,000 tons or around 25% more. The biggest winner is New Zealand.
China's dairy industry has taken a peculiar course. In the first years of the second millennium, it began a stormy upward trend with a tripling of production within 5 years. Then came the melamine scandal, which cost the lives of a number of children. The damage to the company's image was incredible. Consumption and production collapsed abruptly and reached their lowest point in 2009. To this day, the original situation before the melamine scandal has not yet been restored.
Nevertheless, the consumption of dairy products continued to rise, mainly supported by increasing imports. Chinese middle and upper class consumers are distrustful of domestically produced products and are increasingly turning to imported goods, which they value more highly. Whole and skimmed milk powder imports are at the top of the list, while other dairy products such as butter and cheese still lead a shadowy existence. Joint ventures with foreign companies are intended to help reduce the negative image.
The growing middle and upper classes with rising incomes are increasingly switching their eating habits to more highly processed foods in line with Western standards. In view of the large number of 1.4 billion potential consumers, a huge sales market for dairy products is developing here, which clearly cannot be covered by China's own production.
What does this mean for Europe?
The EU-28 is the world's largest closed production area for cow's milk production and is second only to New Zealand in the global export business. However, the opportunities to export directly to China are limited. New Zealand's competitors are cheaper and have already expanded their bases in China. In the EU-28, whole milk powder production has been declining for years due to a lack of competitive sales opportunities. In the case of skimmed milk powder, there are greater opportunities for the EU-28 to sell to a large number of importing countries. The booming global demand has led to an increase on average in recent years. However, a decline in EU SMP exports is expected for 2013. Sales of butter and cheese to Russia remain the main focus for the EU.
The high Chinese demand is absorbing rising global milk production, resulting in direct and indirect sales and price advantages for all milk producers - including Europe. However, we should not lose sight of the other side of this great dependency.
