Surging Chinese demand for liquid milk boosts export opportunities for some

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Chinese consumption of liquid milk rose strongly in 2020 and is expected to continue growing over the coming decade
chinese demand for milk
When Chinese consumption of liquid milk rose strongly in 2020 it had little benefit for local producers as New Zealand and the European Union were the preferred suppliers notching up a 9% and 26% rise – in comparison Australia remained flat

With continued demand for liquid milk it will create export opportunities for dairy producers in Australia and other key dairy-producing regions, according to Rabobank senior dairy analyst Michael Harvey.

Mr Harvey said there had been very strong consumer demand for liquid or ‘white’ milk in China during 2020, despite the impact of the COVID-19 pandemic.  And this would continue to grow.

“Chinese demand for dairy has plenty of space to grow long term – largely attributable to long-standing key drivers such as low per-capita consumption and strong private and public investment into the sector due to the health benefits of dairy products,” he said.

“And with many of the big dairy companies in China now starting to provide their 2020 full-year results, what’s really interesting is we’re seeing that many are reporting rapid revenue growth for ‘white milk’.

“Companies like Yili and Mengnui, for example, have reported double-digit growth in ultra-high-temperature (UHT) long-life milk sales with the companies putting this down to the health and wellness benefits consumers are seeing.”

Liquid milk had been a long-standing growth market for a lot of dairy exporters around the world over the past decade, with exporters from Australia, New Zealand and the EU the major beneficiaries.

Liquid milk imports into China notched up a couple of major milestones in 2020, with September last year the first time more than 100,000 tonnes of liquid milk have been imported in a calendar month.

Last year was also the first time that China has imported more than one million tonnes of liquid milk in a calendar year.

When you compare this to 2008 – when only 8000 tonnes of liquid milk were imported into China – it does give you an indication of how strong growth has been.

With this increase representing a compound annual growth rate (CAGR) over this period of around 50%.

EU market share growth

Mr Harvey did point out that of the big three key liquid milk exporters into China (New Zealand, the European Union and Australia), the EU had recorded the biggest increase in export volumes in 2020, while Australian volumes had remained flat.

The EU-28 was the biggest beneficiary of Chinese liquid milk import as volumes rose by 26% with Germany the largest exporter in the EU bloc with increased volumes of 31%

Chinese liquid milk import volumes from the EU-28 rose by 26% last year and in particular there was really strong growth out of Germany – the largest exporter in the EU bloc – which increased volumes by around 31%.

New Zealand grew there liquid milk volumes into China strongly and were up by 9%, while volumes for Australian producers were flat.

Mr Harvey said the Australian volumes were a “reflection of market dynamics, not trade tensions”, with Australian liquid milk exports to China in 2020 impacted by factors including low production and competing export markets.

He also added the strong growth in liquid milk exports out the European Union was primarily down to changes in local EU market dynamics.

“In the EU, there have been a number of lockdowns and other measures related to the pandemic which have reduced consumption within the EU bloc.

“Several of the EU’s major markets in the North Africa region have also had significant COVID-19 issues and these, combined with political and civil disruption in this region, have impacted the flow of exports into these markets,” he said.

“And this has resulted in the EU directing an increased volume of liquid milk into China and picking up share in this market.”

Short-term head winds

While China’s demand for liquid milk imports was expected to continue its growth path in the long term, there were some immediate headwinds for Chinese consumption growth.

The cost of milk in the Chinese domestic market is rising quickly and some may be deterred by the continued higher prices

Several of the major Chinese dairy brands are talking about margin pressure in 2021, with this coming from two main sources.

Firstly, the cost of local milk in China is at near-record levels largely driven by a big lift in the cost of feed for Chinese corporate farms.

Secondly, the rise in liquid-milk consumption in recent times has partially been at the expense of other higher-margin dairy products, such as drinking yoghurts and flavoured milk.

To combat the resulting margin squeeze, a number of Chinese dairy brands have increased their retail price for milk and this could have a negative impact on overall liquid milk purchases for some consumers.