Chinese dairy processing could have ‘game-changing’ implications

CHINA’s rapid progress towards dairy processing self-sufficiency could have game-changing implications for the long-term export ambitions of countries such as Ireland, according to a study by Davy Stockbrokers.

The Food and Beverages report signals dairy as the fastest-growing sector in the Chinese livestock industry. The report notes that China’s dairy growth is part of the country’s strategic self-sufficiency targets.

The report congratulates China on maintaining food self-sufficiency for its population, which accounts for 20% of the world but lives on only 9% of the world’s cultivated land (less than 1 hectare per person or about 40% of the world average).

In 2008, China was the world’s largest producer of cereals, total meat and cotton, the third-largest producer of milk and the fourth-largest producer of cotton. In the 30-year period studied by Davy, cow numbers rose from 500,000 to 12.4 million. Milk production increased from fewer than 1m tonnes to 37.8m tonnes, and milk yield per cow rose by 60% over the same period.

The report states: “Although the aggregate national data might lead one to view the country’s dairy sector (average herd size, average milk yield) as still undeveloped, there is a dynamic change in situ.

“The extent to which this accelerates to render the country self-sufficient in milk at a higher level of demand or to become an exporter if supply exceeds demand is a big consideration for traditional dairy exporting countries, including Ireland.

“As with so much else, the evolution of China’s dairy industry could have game-changing implications for the global industry. The rise of China to third position in global milk output (even if output is less than half that of India and the US, the top two global milk producers) is impressive.”

Some of the export ambitions of Ireland and other countries have been partly driven by China’s considerable market for imported powdered milk products. Ireland’s growing global importance as an exporter of infant formula is of particular significance in this context.

Whole milk powder imports to China nearly doubled to an estimated 340,000 tonnes in 2010, making China the world’s largest market for infant formula. Significant numbers of Chinese consumers have yet to regain confidence in domestic infant formula products after a scandal two years ago when melamine-tainted milk powder hit mainland China and made nearly 300,000 children sick.

The Davy report notes: “Quality (or the need to raise this in the case of milk) is a pre-occupation of processors and consumers. It may be a defining factor in the decision of some large-scale processors... to backward integrate into milk production those processors, indigenous and overseas, that have invested and built brand positions.

“But not all have felt compelled to do this, among them Mengniu, the country’s largest liquid milk manufacturer which processes 6m tonnes of milk a year, the equivalent of Ireland’s annual output; and Wondersun, China’s fifth-largest dairy enterprise.”

While China may yet have some work to do in convincing its own consumers about the reliability of its powdered product, the country has driven on with its strategy to develop its dairy self-sufficiency. The Davy report notes that over the 10-year period of its study, per capita consumption of dairy products rose by 1.8 times (population growth over this period was 39%); while production of dairy products in 2008, at 2.9m tonnes, was 61.4 times that of 1978.

Liquid dairy production, at 12.3m tonnes in 2008, was 11.4 times higher than in 2000. Urban per capita consumption of dairy products was 22.7kg in 2008, an increase of 146% on 1992. This growth compared with 20% for meat and 9.3% for eggs.

Rural per capita consumption of dairy products was 3.52kg in 2008, a 203% rise on the level in 1992; this compared with growth of 41% for meat and 64% for eggs over the same period.