Analysis: China seeks to milk the milk market but doesn't have enough cows

China Modern Dairy Holdings

03/06/2021 12:00

(Repeats with no change to text)
    By Dominique Patton
    BEIJING, June 3 (Reuters) - China has come to crave milk.
Demand that had been steadily growing has spiked further after
doctors touted its health benefits amid the coronavirus pandemic
and dairy firms across the country have embarked on a
farm-building frenzy.
    But quenching that thirst will be problematic, not least
because finding the millions more cows 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 tonnes of output only met about 70% of
domestic needs. Complicating matters are feed costs at
multi-year highs, while land and water are also in short supply,
making the country a costly place to produce milk.
    Spurred on by near record highs for raw milk prices and
government subsidies, just over 200 new Chinese dairy farm
projects were announced last year, according to consultancy
Beijing Orient Dairy.
    Its analysis shows that 60% of the new projects have set
their sights on 10,000-plus cows and in total the plans call for
some 2.5 million cows - roughly half of China's current milking
herd - to be added in the coming years.
    On the face of it, China's dairy market, worth some $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. Even so annual
per capita intake is only 6.8 litres compared to 50 litres for
the United States, according to Euromonitor International.
    "Average per capita consumption is still very low," Gao
Lina, the CEO of China Modern Dairy Holdings Ltd  1117.HK  told
Reuters. "The potential is huge." 
    She said Chinese people, especially children, have begun
eating more cheese which will further inflate demand. A kilogram
of cheese generally requires 10 kilograms of milk to make.
    Milk in China is, however, still considered special enough
to be a popular gift. Fresh milk costs about $2 a litre, roughly
double UK and U.S. prices, while the more common 240 ml packs of
room temperature UHT milk cost about 40 cents.
    Demand for fresh chilled milk especially, which constitutes
just a fifth of milk sales in China, has shown rapid growth,
climbing 21% in the first 11 months of 2020 versus 10.9% for
room-temperature milk, according to Nielsen data.
    To satisfy that demand, big players will need to develop
more raw milk sources closer to wealthier population centres,
analysts say.
    
    SEND IN THE COWS
    Firms outlining grand plans include Modern Dairy, which
wants to double its herd over the next five years to 500,000 by
buying up smaller farming companies and building new farms. 
    Shanghai-based processor Bright Dairy and Food Co Ltd
 600597.SS  aims to build four more farms to add 31,000 cows to
its 66,000-strong herd. China Youran Dairy is planning an IPO,
seeking up to $800 million to expand its breeding herd and
increase milk output.  urn:newsml:reuters.com:*:nL3N2N51BU  
    According to Beijing Orient Dairy, new Chinese farms needing
a total of 1.35 million cows are already under construction, but
some of those will have to sit empty.
    It estimates that over the next two years, China's domestic
herd will generate about 500,000 new heifers while imports could
come in at around 400,000 if the pace of imports stays the same
as last year when China imported almost 200,000 heifers, mostly
from Australia and New Zealand.
    Importing heifers is the fastest way to stock a new farm,
shaving about a year off the time it would take to breed the
stock at home. Imports are also preferred as the cattle are free
from the many diseases circulating 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 livestock on ships for long
periods.  urn:newsml:reuters.com:*:nL1N2M62WG
    "We have been inundated with inquiries, especially as New
Zealand stops the trade," said an Australian cattle exporter who
declined to be identified, adding that the surging demand from
China is encouraging graziers to spend more on breeding.
    Chile and Uruguay also export small volumes, but shipping
times are twice as long and the breeds used produce less milk,
making them less attractive options.
    Brazil, the United States and European countries could
become good sources of breeder cattle, said Dou Ming, chief
economist at Beijing Orient Dairy.
    "If we just added two more import countries, we'd be fine,"
he said.
    China and the United States pledged to start talks on
imports of breeder cattle within a month of the Phase 1 trade
deal signed in Jan. 2020 but it remains unclear if the
discussions have begun.
    The office of the U.S. Trade Representative, China's
Ministry of Commerce and General Administration of Customs did
not respond to requests for comment.
    Feed costs, however, present another impediment, analysts
and industry sources say, as imported heifers take time before
they become milkable cows.  
    Corn prices are at record levels, while hay/grass is also
set to become more expensive as it competes for acres with corn,
said Grant Beadles, China manager at Land O Lakes, which
supplies feed and forage seed to the market.
($1 = 6.4496 Chinese yuan)

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Cow milk output by country    https://tmsnrt.rs/2ToZQaK
Cow milk consumption by country    https://tmsnrt.rs/3fEs7TF
Milk-producing cows by country    https://tmsnrt.rs/3g6fbok
Cow milk output by country (Interactive)    https://tmsnrt.rs/3icwtD8
Milk-producing cows by country (interactive)    https://tmsnrt.rs/3g0fzF3
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 (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)
 ((dominique.patton@thomsonreuters.com;))