China drives global dairy markets up

Darragh McCullough

Darragh McCullough

China is having an ever bigger impact on global dairy prices, according to the National Dairy Council's annual review.

It shows that milk production levels in China are not able to keep up with the country's phenomenal rate of growth.

Since the melamine scandal rocked its dairy sector in 2008, China's milk production has dropped by more than 13pc, which is equivalent to the entire Irish milk output.

As a result, China has become the biggest importer of dairy products worldwide, hoovering up a seventh of globally traded dairy products. This demand for imported product is expected to continue for several reasons. China's economy continues to grow at rates close to 10pc a year.

In addition to the extra disposable income that this creates, China's population also continues to grow. Not only is it growing in number, but it is also growing in terms of the dairy consumption per person.

At the moment, the average Chinese person consumes just 20kg of dairy products a year. The Government is actively encouraging its citizens to drink more milk, but they have a long way to go before they hit the Food and Agriculture Organisation's (FAO) recommendation of 180kg/hd/yr.

It is with a view to this potential for growth that Chinese companies are now eyeing up dairy companies around the world. Shanghai-based Bright Dairy is apparently leading a six-bidder race for a 50pc stake in yoghurt giant Yoplait.

At the same time, the Chinese beverage company Wahaha is reported to be interested in acquiring Japanese dairy Megmilk. If both are successful it could mark a new era in the expansion of the China dairy industry, according to Bord Bia's Asia Manager, Breiffini Kennedy.

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"These bids are a reflection of the desire of the Chinese dairy industry to move beyond the melamine crises, to surpass the limitations of the domestic industry and to acquire overseas expertise and markets," he said.

In addition to China, Russia has emerged as the other major influence on world dairy markets. Together, they are helping to increase the global market for dairy products by 2pc a year. This equates to the total annual milk production of New Zealand.

This is also part of the reason that both the FAO and the US Department of Agriculture are forecasting that global dairy prices have shifted to a higher average trading range. While events such as weather extremes, contamination or disease outbreaks will ensure volatility remains, the reports say that increases in output this year will struggle to match increasing demand.

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