China's imports of whole milk powder have slumped to their lowest in nearly three years, raising concerns over one of the key props to world dairy market, days after export giant Fonterra cut its price forecasts.

China's whole milk powder imports fell below 8,000 tonnes in September, a fifth successive month-on-month decline, and the lowest figure since December 2008, Global Trade Information Services data showed.

The country's imports of the product, used largely in yogurt, ice cream, bakeries and chocolates, still remain higher so far in 2011 than a year ago, thanks largely to a jump in imports to 55,000 tonnes in April.

However, the rate of increase, of 13%, is far lower than the pace that some observers have been factoring in, with the US Department of Agriculture forecasting a 34% increase for the full 2011, to 430,000 tonnes.

Market weakness 

It also raises a further question mark over global dairy prices, which New Zealand-based Fonterra noted on Tuesday had, at its twice-monthly globalDairyTrade auctions, "suffered "eight successive price falls – and one uptick – since May".

Fonterra cut its forecast for milk payouts to farmers from NZ$6.75 per kilogramme of milk solids to NZ$6.30 per kilogramme, adding that it was "not yet seeing the recovery of international dairy prices we initially anticipated".

A cut in China's whole milk powder purchases would be particularly significant for New Zealand, the world's top dairy exporter, which supplies 93% of these imports.

Indeed, Fonterra ramped up whole milk powder output by 25% to 839,000 tonnes in 2010-11 to tap into Chinese demand.

Although China's skim milk powder imports have been more stable – and, unusually, exceeded whole milk powder buy-ins last month – New Zealand has a smaller share, of 56%, of this trade.

Skim vs whole

The data appear to conflict with reports of ascramble by Chinese consumers for foreign product, with Hong Kong and Macau shops imposing limits on purchases of infant milk formula, amid persistent concerns for the safety of domestic supplies following the 2008 melamine scandal.

However, infant formula is derived largely from skim milk powder, over which China's own production capacity is limited, at about 56,000 tonnes a year, and growing slowly.

China's output capacity for whole milk powder is estimated by USDA attaches in Beijing at 1.1m tonnes, and expected to recover next year to levels reached before the melamine crisis.