China’s growing self-sufficiency in milk production, representing a staggering 11 million metric tons from 2018 to 2023, is reshuffling the global dairy sector.

One place it’s showing up is in the country’s imports of whole milk powder — which have dropped 36% from an average of 670,000 metric tons from 2018 through 2022 to 430,000 metric tons in 2023.

China’s growing milk production is having a domino effect on global trade, according to Rabobank’s Global Dairy Quarterly report.

“New Zealand, the primary dairy exporter to China, is grappling with a formidable challenge. The country is now compelled to seek out alternative markets for the milk equivalent of nearly 150,000 metric tons of WMP,” Rabobank analysts said.

This substantial amount — almost 1.3 million metric tons of milk, equivalent to 6% of New Zealand’s annual milk production — is now in search of import destinations in the form of WMP, skim milk powder, milkfat or cheese.

Market competition

“This situation has inevitably intensified competition among the existing dairy-exporting regions and led to lower-than-average global milk powder prices,” the analysts said.

China is the world’s largest dairy importer and a key player in the global dairy market.

From 2010 to 2022, China’s imports surged, rising from 4.5 million metric tons to nearly 14 million metric tons of liquid milk equivalent.

“This growth was primarily driven by a significant increase in WMP imports, which more than doubled from 325,000 metric tons to peaking at nearly 845,000 metric tons in 2021,” the analysts said.

But those imports have since declined to just 430,000 metric tons. Rabobank expects China’s WMP imports to stabilize by 2025 at about 500,000 metric tons.

China is the largest importer of New Zealand’s dairy exports.

The five-year average product mix of those exports from 2019 to 2023 shows that more than half of the volume shipped to China was WMP.

Export strategy

“In 2021, New Zealand’s (total) WMP exports peaked at nearly 1.6 million metric tons due to China’s robust demand. However, in response to lower demand in the subsequent years, New Zealand adjusted its export strategy,” the analysts said.

The country increased SMP exports by 125,000 metric tons, butterfat exports by 71,000 metric tons and cheese exports by 13,000 metric tons in 2023 compared with 2021, offsetting the 250,000 metric ton fall in WMP exports.

China’s growth in milk production is the result of a series of government policy directives in 2018 to stimulate development of large-scale dairy farms.

The continued growth in China’s milk output and dairy product production offers opportunities for companies involved in such things as animal health, genetics and milking and processing equipment, but it also poses a significant challenge to key dairy exporting regions.

“These regions, with their significant exposure to the Chinese market, will need to adapt to the changing market dynamics,” the analysts said.