China needs more New Zealand milk

New Zealand is well positioned to take advantage of a 75 per cent increase in Chinese milk imports by 2020, a new report says.

The Agrifax China Dairy Report 2014, written by Agrifax senior dairy economist Susan Kilsby after a visit to China, says that while dairy prices have fallen this year, the long-term outlook for exports is good.

"By 2020, China will need to import the equivalent of 20 billion litres of milk to compensate for the shortage in its own milk supply - 75 per cent more than was imported in 2013," Kilsby said.

She said China's dairy industry was going through a period of "considerable change" as it tried to dismiss the poor image gained in 2008 when the melamine crisis hit the world's media, with the Chinese government addressing milk quality issues through various forms of legislation designed to consolidate the industry.

The Chinese government initially set a target for domestic milk production of 50 million tonnes by 2015, which equates to a 40 per cent increase from 2013 levels.

Kilsby said this target was "far too ambitious" and would not be achieved.

The report said large farms in China had high costs of production, which, combined with the milk shortage, had inflated the price of raw milk.

Imported dairy ingredients such as milk powder were typically cheaper than locally sourced milk and often of higher quality, which is why they were so popular.

China's demand for dairy ingredients was not only growing, but so was its demand for consumer goods imported in finished format.

Foreign brands dominated the infant market and imported brands were rapidly gaining share in China's vast market for UHT (longlife) milk, the report said.

Kilsby said New Zealand was well positioned to take advantage of the extra demand forecast to come from China because of the strength of existing business relationships but would face increased competition as other countries looked to China to soak up any surplus dairy supply.

Other key points from the report include:

❏ 20 per cent of the arable land in China is contaminated.
❏ China's per capita consumption of dairy products is forecast to catch up to South Korea by 2023.
❏ 20 per cent of China's total milk production comes from farms with fewer than five cows.
❏ This year, China will need to import more than 1 million tonnes of alfalfa to feed its dairy cows.
❏ China will need to import the equivalent of 20 billion litres of milk by 2020.

Agrifax is an agricultural research business owned by the NZX.