China's whole milk powder imports, whose soaring growth this
year has been key to supporting dairy prices near record levels, are to grow
nearly as fast in 2014, with purchases of skim milk powder and whey to prove
China's whole milk powder buy-ins, which jumped 28% to a
record 520,000 tonnes this year, will surge 25% in 2014 too, driven by demand
from manufacturers of the likes of infant formula and yoghurt, the US
Department of Agriculture's Beijing bureau said.
Underlying market trends of "strong population growth,
continued urbanisation, higher incomes and nutritional concerns" are driving
the popularity of whole milk powder, the bureau said.
However, China's own production is being squeezed by a
dearth of capacity, besides domestic milk output growth which is struggling to
keep up with consumption expected to rise 6.8% to 38.6m tonnes next year.
"With a growing population and changing dietary demands from
increasingly urban dwellers, China's milk demand will likely continue to
outpace its local milk production, resulting in additional dairy imports in
2013 and 2014," the bureau said.
Whole milk vs skim
Indeed, Chinese imports of skim milk powder will rise by
15.0% to 230,000 tonnes in 2014, accelerating a little from the 14% rise this
"Non-fat dairy milk is normally substituted for whole milk
powder when prices are too high," the bureau said, noting that in 2013, "the non-fat
dairy milk import price increased by 14% to an average of $3,834 per tonne,
making it higher than the whole milk powder price for the first time since 2008".
Whole milk powder, containing extra fat, should in theory be
more expensive that skim milk powder.
Furthermore, cheese imports will rise by 18% to nearly
45,000 tonnes, and why purchases by 20% to 442,000 tonnes.
Imports of fluid milk itself will grow even faster, by 67%
to 300,000 tonnes, spurred by demand for ultra-high temperature (UHT) treated milk
products which "are a new trend in first-tier Chinese cities.
"Retailers note that lower-priced pasteurised or UHT milk is
one of the fastest selling products in China's marketplace.
"China's growing population of older consumers located in
the first-tier cities tend prefers to consume skim or low fat milk, which
should continue to support a positive trend for imported UHT milk products in
large urban areas."
It is relatively easy for foreign products to compete on price
when domestic milk is particularly expensive, costing 3,735 yuan ($582) a tonne
at the farmgate level in the first half of the year – 63% above the world
average price of $357 a tonne, according to the bureau.
However, it is China's whole milk powder dynamics on which dairy
investors may particularly focus, given their extent, and their importance to
the world dairy market overall.
Fonterra earlier this month blamed its inability to turn more
than 70% of its output into powders for an $800m value gap, given their
relatively strong prices compared with the likes of casein and cheese that the
co-operative was forced by capacity issues to process milk into instead.
The prospect of strong Chinese imports comes against a
backdrop of recovering output in many major producing countries, and in
particular New Zealand, the top exporter.
Rabobank last week forecast world dairy prices in 2014,
softening a little, with "supply continuing to rise fast enough to loosen
the market further" in the second half of the year.