Chinese milk industry still recovering from melamine crisis: GAIN Report

10-Nov-2010 - Last updated on 13-Mar-2017 at 10:17 GMT

The Chinese milk industry is still struggling to recover from the effect of the melamine crisis that rocked the industry in September 2008, says the latest report from USDA’s Global Agricultural Information Network (GAIN).

Next year will see modest growth in milk production, up five percent to 30.5m tonnes, according to the report China - Dairy and Products Annual 2010.

“While Chinese milk production is on the rise, growth is being hindered this year by additional detections of melamine in Chinese milk powder, animal disease, and comparatively low animal productivity,” states the report’s executive summary. “Output will remain below pre-melamine levels of more than 35m tonnes in 2008 for the foreseeable future.”

Weak demand

The Chinese dairy herd is slowly being restocked after the melamine crisis when 15 per cent of the national herd was taken out of production due to weak demand.

Whole milk powder production is predicted to rise 5 per cent to more than 1m tonnes next year after a 2 per cent rise this year.

Nonfat dry milk production is expected to remain unchanged at 56,000t following flat growth in 2010.

China’s fluid milk imports will continue to rise next year but will remain a niche market. Imports are expected to climb 13 per cent to 17,000m tonnes following a 15 per cent increase this year.

“The strong demand is fueled by sales to wealthier Chinese and expats who are willing to pay up 20 rmb ($2.94) per litre of imported milk at retail,” according to the report.

Three countries: New Zealand, Australia, and France account for nearly 90 percent of sales.

Non-fat dry milk imports are predicted to reach 100,000m tonnes in 2011; up from 91,000m tonnes this year and 55,000t two years ago. Growth is being driven by strong demand from infant formula producers.

“While traders report food safety concerns are affecting sales in a number of Chinese dairy products, there has been especially weak demand for local milk from manufacturers of infant formula, which accounts for an estimated 10-15 per cent of Chinese milk consumption,” write the report’s authors.

Strong growth is predicted for whole milk powder (WMP) imports in 2011 with tonnages up 24 per cent at expected to reach 420,000m tonnes, following a 90 per cent rise this year. New Zealand and Australia are expected to account for more than 90 per cent of total imports.

Imports reflect tight domestic milk supply, and continuing food safety concerns about local milk.

“Many Chinese companies including large-scale manufacturers such as Wahaha, have shifted to imported ingredients for entire production lines. In some cases firms have contracted with foreign companies to manufacture retail products for distribution in the Chinese retail market. China’s growing reliance on imports will continue for the foreseeable future,” said the report.

The US Embassy in Beijing forecasts that China’s fluid milk exports next year will rise 10 per cent to 24,000m tonnes after a 10 per cent increase this year.

Hong Kong accounts for 98 per cent of sales, but the country’s milk exports remain significantly below the 38,400t exported in 2008.