Dairy Products China News(Dairy Products China News 202212)

There is no doubt that 2022 has been very challenging for dairy commodity exporters, underlined by GDT event 322 down 3.8% just before the Christmas holiday. Whilst some importing markets have upped their volume requirements, the reduced buying from China has remained the key factor overall. When we see major dairying businesses such as Modern Dairy recording growth in milk production of 57% in the H1 period this year, this is a clear pointer to one of the main causes of the lower demand (and the recent slippage in commodity prices). The country's milk production has been growing rapidly, despite challenging weather conditions. This fits the drive for national food security, understandable in a country which suffered famine in the 1950s and 1960s. This is why China is now the world's leading importer of cereals – and why it halted fertiliser exports back in October 2021. Another major factor has been the slowing of the Chinese economy for a range of reasons, not least the property crisis: in 2022, JP Morgan estimates that this specific problem will have cost China's economy one point of growth – close to a third of the expected 3% or thereabouts. Housing costs have had their worst effects in Beijing and Shanghai too – areas which are key motors of local consumption.

November's economic indicators were very discouraging. Will next year prove any easier any will this hold for dairy? Whilst the pandemic situation has been one factor which has made it very difficult for the government to increase the role played in the economy by domestic demand, the rapid rollback of the zero-COVID policy now in place does suggest that 2023 could indeed see a return to moderate growth – the February to April period next year looks like being the time this recovery will be seen, if so. Local stocks have been significant for many dairy commodities, but trade contacts suggest that these are easing back in some cases; their expectation is that demand for dairy products will benefit across the various channels IF the levels of cases remain limited, which seems unlikely according to current reports. If not, the many recent GDP growth forecasts for China of between 4-5% in 2023 will almost certainly end up being far too high. For now, though, we hope for the best, of course – wishing all readers a very happy 2023!