Market

US is Optimistic Over the Growing Market in China For Whole Milk/Skim Milk Powder

Billy Sims-China Food Group is capitalizing on China’s insatiable demand for dairy products as China turns to the United States for a safe and reliable supply of milk—especially whole milk powder and skim milk powder.

China’s domestic production cannot keep pace and Pacific-region dairy producers, such as New Zealand and Australia, are unable to make up for the shortfall. Additionally, the US enjoys a reputation in China for high quality standards, consistency, purity and abundant capacity.

Based on United Stated Department of Agriculture (USDA) projections, Billy Sims-China Food Group is well positioned to meet China’s demand as the Detroit, Michigan-based company begins exporting WMP and SMP in early 2015. By 2017 the company will begin operation of its own production facility in northern Michigan.

Billy Sims-China Food Group projections are based on USDA reports, industry observers, regional dairy producers and talks with importers and government agencies in China. According to USDA, China’s WMP 2014 import forecast has been raised to one million tons as import demand is expected to continue to expand rapidly. This is being driven by limited domestic supplies, stricter regulations and growing consumer demand. China’s domestic production of WMP is expected to be lower than anticipated and the forecast is trimmed by 4 percent to 1.25 million tons as milk output is expected to fall short of earlier forecasts. In addition, the introduction of stricter policies governing the production of infant formula powder is likely to restrict domestic supplies. Notably, China’s Food and Drug Administration (CFDA) is instituting new policies requiring all dairy/infant milk powder producers to re-register for a production permit. Recently, it has been reported that more than one-third of China’s producers failed to receive production permits which is likely to severely limit supply, forcing China to look outside its borders to make up for the shortfall. Further, it has been reported that China’s State Council has issued guidelines to consolidate the industry into 10 large milk powder producer groups by the end of 2015 with further consolidation into 3-5 groups by the end of 2018.

Ultra High Temperature and Fresh Milk Demand to Increase

Similarly, USDA estimates for China’s milk output is lowered by 3 percent to 36 million tons as stricter health requirements for milk are expected result in reduced supplies from small-scale dairy farmers. In addition, there are strong incentive for farmers to slaughter low yielding animals due to high beef prices – up by 30 percent in 2013. As a result, the size of the herd is revised downward to 8.71 million head.

Due to strong consumer demand and tight domestic supplies, China’s import demand for ultra-high temperature (UHT) and fresh milk has been growing at a rapid pace and the milk import forecast at 300,000 tons remains unchanged from the December 2013 estimate. Approximately 40 percent of the UHT and/or fresh milk in the first five months of 2014 were supplied by Germany. U.S. exports of UHT milk to China have been fairly modest, but shipments through May 2014 are up 65 percent over the comparable period in 2013 indicating that U.S. exporters are starting to establish a foothold in this market. The Complete July 2014 USDA Report titled Dairy: World Markets and Trade is available here.