by Harry Baumes
China is often identified as a land of opportunity for exporting countries that can supply the Chinese people with what they want. The country has been a bright spot in the world with respect to economic growth. Between 1998 and 2003, real per capita growth in the world increased about 1.2% annually, while China’s real per capita real GDP expanded a robust 7.0% per year. Moreover, the sheer size of the market—1.3 billion people, increasing at an average rate of 0.6% per year—translates into lots of consumers.
Thus, opportunities abound to serve a market of that size with the right “product.” Dairy is one of those products. China’s dairy sector is one that should benefit from strong income growth and its large market size. In recent years, China’s per capita consumption of dairy products has grown dramatically, and the country’s domestic producers have been unable to keep pace with the growing demand for dairy products.
Over the past decade, China’s per capita consumption of fluid milk, nonfat dry milk powder (NFDP), and whole milk powder (WMP) more than doubled. Per capita consumption of fluid milk is estimated to be close to 10.0 kilograms (kg), compared with only 4.8 kg in 1993. NFDP per capita consumption has increased to nearly 0.08 kg in 2003, compared to 0.03 kg ten years ago. Per capita WMP consumption rose from 0.23 kg to 0.52 kg from 1993 to 2003. Consumption growth has been fairly steady over the past decade, but in recent years its rate has accelerated. Over the past five years alone, per capita consumption of NFDP doubled, WMP increased by 55%, and milk jumped 66%.
A large income disparity exists between China’s “urban” and “rural” populations. Beijing reports that per capita fresh milk consumption in “urban areas” during 2002 was more than 13 times greater than in “rural areas.” As incomes improve in rural areas relative to urban areas, demand for dairy products will likely grow faster and narrow the gap between urban and rural consumers. A recent USDA Attaché Report indicated that China’s per capita milk consumption is mainly in the wealthier urban areas, at about 11 kg, and is much lower than the world average of 98 kg. This leaves ample room for future consumption growth.
Fluid milk production in China has grown with demand. But production of WMP and NFDP has not. China’s milk yield per cow has increased an estimated 20% between 1990 and 2003, rising from 2.9 metric tons (mt)/cow to 3.5 mt/cow. While improvements in cow productivity are positive signs, the improvement has lagged other countries. Cow productivity in the U.S. increased 26% over the same period.
Since 1994, China has imported between 800,000 mt and 1 million mt of fluid milk. The growth in fluid milk and processed dairy products has fueled competition for milk supplies. Large dairy companies and foreign joint ventures have captured most domestic supplies of raw milk. As a consequence, smaller processors have had to turn to imported milk powder.
The growth in the WMP and NFDP markets has required China to import. Through 1998, China’s deficit of NFDP fluctuated between a high of 20,000 mt and a low of 6,000 mt. Since 1999, the NFDP deficit has been growing, rising to an estimated 28,000 mt for 2003. Historically, the WMP deficit was relatively modest through the mid-1990s, but it began rising as the demand for fluid rose late in the decade. The deficit in WMP has become more acute over the past two years, rising from a 2,000-mt surplus in 2001 to an estimated 64,000-mt deficit for 2003.
China needs to increase its raw supplies of dairy in order to meet rapidly growing demand for milk and processed products, by either producing or importing more, or a combination of the two. Reliance on imports is not acceptable. It is expensive to ship fluid milk, although there is a modest level of fluid imports by China. It is less expensive to ship milk powder when compared to fluid milk.
Milk production has risen over time, but it has not grown fast enough. China needs to increase the size of its milking herd and the quality of the animals in that herd. Productivity (milk per cow) gains are critical. While China’s productivity per cow lagged behind that of the United States over the 1990–2003 period, the yield per cow difference between the two countries is substantial. U.S. dairy producers currently have milk cow yields nearly 2.5 times greater than Chinese farmers.
The Ministry of Agriculture has announced the “Advantageous Cow Milk Area Development Program, 2003-2007.” The objectives are to increase milk production and promote better use of milk resources. The focus will be on improving genetics, feeding management, and processing. China will likely rely on live animal imports to improve its dairy herd genetics, which should lead to export opportunities for the United States, Australia, New Zealand, the European Union, and other countries with established dairy sectors with highly productive cows.
