Dairy Products China News(Dairy Products China News 202206)

Welcome to the June issue of Dairy Products China News.

According to the official statistics China's milk production continued to increase through 2021, showing growth in each quarter compared with 2020. This trend has been fuelled by very strong milk prices locally and has continued during 2022, when the seasonal drop-off in Q1 was also slightly less than in 2021, -34% as against -36% in Q1 2021. Future consolidation at producer level and on larger farms are certainties, the only question being at what rate this will occur – undoubtedly the higher input costs this year will act as a catalyst in this process. This seems a fair and "directionally correct" assessment although we should bear in mind that all such numbers in all countries are questionable!

One of the leaders and beneficiaries of this growth has of course been Yili – this month yet again topping the rankings of Chinese consumers' favourite FMCG brands in Kantar's research. The underlying consumer demand is evident, with per capita consumption of dairy up 10.6% to 14.4kg last year. However, consumer caution is in the air in China as in most markets this year, and JD.com recently highlighted the lack of any rapid rebound after local Covid lockdowns have been lifted.

After the very disappointing May import figures, commodity exporters overseas will be watching China's trends in local milk production and consumer spending with some concern. High prices have likely played a part but it's not all about sector-specific factors, of course, this year especially. One reason for cautious optimism may be the gradual improvement in the logistical challenges which have curbed trade through China's major ports, with congestion evident but easing in terms of vessels being able to dock and local trucking capacity. Whilst the zero-Covid ambition and policies are being amended they remain in place, and who knows what impact negotiations with the unions will have on the operations of the ports on the US West Coast and in Hamburg this summer – wild cards which may yet have dramatic impacts on China's imports overall. A view of the future also needs to factor in reduced availability from some supplying regions, reflecting short-term factors (costs) and longer-term issues (governmental responses to environmental constraints). Forecasting future production and trade flows is only getting more and more challenging.