China's raw milk shortage to continue into 2015

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Publish time: 27th March, 2014      Source: www.efeedlink.com
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March 27, 2014

   

   

China''s raw milk shortage to continue into 2015

   

   

   

Shortfall of raw milk in China, which has sent imports soaring and driven up international prices, will continue until at least 2015, according to Mengniu Dairy,the country''s top dairy supplier.

   

   

According to the Dairy Association of China, total milk yields on the mainland fell a record 5.7% to 35.3 million tonnes last year. The milk shortage,which has been spreading across the mainland market since last November, was driven by poor weather, disease and a government drive to close backyard groups in favour of larger operators to ensure quality.

   

   

"The shortage may last for another three to five years as more individual dairy farmers give up cow raising while huge, modern farms are still under development," said Song Liang, senior dairy industry analyst of the Distribution Productivity Promotion Centre of China Commerce, a Beijing-based think tank. Song added that a large farm would usually take nine to 10 years to recover its costs.

   

   

The supply gap has since been filled by imported milk powder, mostly from New Zealand, which soared 50% to 854,000 tonnes last year and is expected to exceed one million tonnes this year.

   

   

Imports as a proportion of the country''s dairy consumption has soared tenfold to 20% between 2007 and 2013, data from New Zealand exporter, Fonterra, showed. Fonterra expects this proportion to increase this year, estimating China''s dairy imports to be 1.5 million tonnes, equivalent to 13.4% of the world total.

   

   

With the government''s drive to crack down on smaller operators, and foreign dairy groups investigating over the pricing of infant formula, China''s dairy industry isundergoing transformation. Up to 40% of individual farmers left the industry over the past two years, according to industry estimates.

   

   

On the other hand, major domestic dairy producers like Mengniu Dairy, Inner Mongolia''s Yili Industrial Group and Shanghai-based Bright Dairy are investing in mid-to-large-scale farms and are seeking to expand overseas to ensure they get a safe and stable milk supply.

   

   

Mengniu recently unveiled a 25% rise to RMB1.63 billion (US$209 million) in earnings for 2013 and efforts to ramp up its own milk output, with four dairy operations in production, a further four set to open this year, and two on the drawing board. During the past two years, it imported 14,000 cows from Australia and New Zealand and used dairy management systems from Denmark in its farms.

   

   

Mengniu has also become the largest shareholder in China Modern Dairy,investing HKD3.18 billion (US$409.86 million) in May to raise its stake to 28%, and spending HK$470 million (US$60 million) on a stake in Yuan Sheng Tai Farm in November to ensure quality of its raw milk supply.

   

   

"By next year, 100% of our raw milk used in our products will come from the farms we built or work with," a Mengniu spokesman said. Currently, this figure stands at 94%.

   

   

Yili, China''s largest dairy manufacturer by sales, is expanding overseas, with partnership agreements with Dairy Farmers of America, the top dairy company in the US, and Italian dairy producer, Sterilgarda Alimenti, during the past year. In addition, it invested RMB1.1 billion (US$177.00 million) to build a baby formula facility in New Zealand to take advantage of the rich milk resources in the country.

   

   

Bright Dairy and Beijing Sanyuan Food are also busy securing milk sources. The former is in co-operation talks with Israeli dairy company Tnuva, while the latter plans to expand its farms in Hebei and Shandong provinces.

   

   

Foreign players including Nestle and Fonterra of New Zealand also said thatthey will set up more farms in China.