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China seeks to milk the milk market but does not have enough cows

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China seeks to milk the milk market but does not have enough cows

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BEIJING – China has come to crave milk. Demand that had been steadily growing has skyrocketed even further after doctors touted its health benefits amid the coronavirus pandemic and dairy companies across the country embarked on a farm-building frenzy.

But quenching that thirst will be problematic, especially since finding the millions of cows most needed for planned new and expanded farms will be challenging.

China is the world’s third largest milk producer, but last year’s 34 million tonne production only covered about 70% of domestic needs. Complicating matters is food costs, which have reached multi-year highs, while land and water are also in short supply, making the country an expensive place to produce milk.

Spurred by near-record levels in raw milk prices and government subsidies, just over 200 new Chinese dairy farm projects were announced last year, according to consultancy Beijing Orient Dairy.

Their analysis shows that 60% of new projects have set their sights on more than 10,000 cows and in total the plans call for about 2.5 million cows to be added, about half of China’s current milking herd, in the next years.

At first glance, China’s dairy market, worth about $ 62 billion in annual sales, is ripe for development. The government has heavily promoted milk and its benefits, in part to support the rural dairy industry, boosting consumption. Still, the annual per capita intake is just 6.8 liters compared to 50 liters in the United States, according to Euromonitor International.

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“Average per capita consumption is still very low,” Gao Lina, chief executive of China Modern Dairy Holdings Ltd., told Reuters. “The potential is huge.”

He said that the Chinese, especially children, have started to eat more cheese, which will further increase the demand. One kilogram of cheese generally requires 10 kilograms of milk to make.

However, milk in China is still considered special enough to be a popular treat. Fresh milk costs around $ 2 a liter, roughly double the UK and US prices, while the more common 240ml packages of room temperature UHT milk cost around 40 cents.

Demand for specially chilled fresh milk, which constitutes only a fifth of milk sales in China, has shown rapid growth, rising 21% in the first 11 months of 2020 compared to 10.9% for milk at temperature environment, according to Nielsen data.

To meet that demand, big players will need to develop more sources of raw milk closer to wealthier population centers, analysts say.

SEND THE COWS

Companies outlining big plans include Modern Dairy, which wants to double its herd over the next five years to 500,000 by buying smaller agricultural businesses and building new farms.

Shanghai-based processor Bright Dairy and Food Co Ltd aims to build four more farms to add 31,000 cows to its herd of 66,000 people. China Youran Dairy is planning an IPO, seeking up to $ 800 million to expand its breeding herd and increase milk production.

According to Beijing Orient Dairy, new Chinese farms that need a total of 1.35 million cows are already under construction, but some of them will have to be left empty.

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It is estimated that over the next two years, China’s domestic herd will generate around 500,000 new heifers, while imports could reach around 400,000 if the pace of imports remains the same as last year when China imported almost 200,000 heifers. , mainly from Australia and New Zealand. .

Importing heifers is the fastest way to plant a new farm, reducing the time it would take to raise cattle at home by about a year. Imports are also preferred as livestock are free from the many diseases that circulate in China’s herd.

But clouding that outlook has been New Zealand’s decision in April to halt live cattle exports within two years due to concerns about the welfare of cattle on ships for long periods.

“We have been inundated with inquiries, especially as New Zealand stops the trade,” said an Australian cattle exporter who declined to be named, adding that growing demand from China is encouraging farmers to spend more on breeding.

Chile and Uruguay also export small volumes, but shipping times are doubled and the breeds used produce less milk, making them less attractive options.

Brazil, the United States and European countries could become good sources of breeding cattle, said Dou Ming, chief economist at Beijing Orient Dairy.

“If we added two more importing countries, we would be fine,” he said.

China and the United States have pledged to start talks on farmed cattle imports within a month of the Phase 1 trade agreement signed in January 2020, but it is unclear whether the discussions have started.

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The office of the United States Trade Representative, the Ministry of Commerce and the General Administration of Customs of China did not respond to requests for comment.

Feed costs, however, present another impediment, analysts and industry sources say, as imported heifers take time to turn into dairy cows.

Corn prices are at record highs, while hay / grass also becomes more expensive as it competes for acres with corn, said Grant Beadles, China manager at Land O Lakes, which supplies forage and feed seeds to the market. ($ 1 = 6.4496 Chinese yuan)

(Reporting by Dominique Patton; Additional reporting by Beijing Newsroom, Colin Packham in Canberra, Tom Polansek in Chicago and Gavin Maguire in Singapore; Editing by Tony Munroe and Edwina Gibbs)

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