On July 3rd, the 15th Dairy Industry Conference of the China Dairy Association was held in Wuhan, where mainland Chinese scholars revealed that due to overcapacity, dairy enterprises are losing around 10,000 yuan for every ton of powdered milk sold, with industry losses exceeding 80%.
According to the Daily Economic News on July 5th, during the conference on July 3rd, Li Shengli, Chief Scientist of the National Dairy Cattle Industry Technology System of China, professor at China Agricultural University, and Vice President of China Dairy Association, stated that in 2023, China’s excess supply of raw milk exceeded 2 million tons. To absorb the excess capacity, dairy enterprises have increased the production of powdered milk. In April to May 2024, leading dairy companies on average sprayed about 20,000 tons of fresh milk into powder daily, accounting for approximately 25% of the milk intake.
However, Li Shengli pointed out that spraying powdered milk is actually a losing business for dairy companies. The cost of spraying a ton of milk powder is around 35,000 yuan, but a ton of milk powder can only be sold for about 15,000 to 19,000 yuan, resulting in a loss of over 10,000 yuan per ton.
According to the data from the CPC National Bureau of Statistics, China’s milk production in 2023 was 41.97 million tons, and the rapid expansion of enterprises has led to overcapacity in the industry.
A participant from a dairy company revealed to the Daily Economic News that the shelf life of fresh milk is generally 18 to 24 months. With excessive domestic stocks that cannot be consumed, if the inventory continues to accumulate, it will eventually have to be destroyed.
The market is chaotic, with high inventories and continuously decreasing raw milk prices. The annual report of AusAsia Group in 2023 indicated that according to data from the Ministry of Agriculture and Rural Affairs, the selling price of raw milk in December 2023 was about 11% lower than in December 2022, marking the largest year-on-year decline in raw milk prices in over a decade.
Li Shengli mentioned that in May 2024, the milk price monitored by the dairy cattle system was 3.34 yuan per kilogram, down by 0.55 yuan per kilogram compared to the same period last year, resulting in negative profit margins for the first time since records began, with industry losses exceeding 80%.
The financial report of AusAsia Group stated, “The Chinese dairy farming industry is facing the most difficult period in over a decade.” Many industry insiders believe that the key issue for dairy enterprises is to address the imbalance between supply and demand.
Dairy industry analyst Song Liang, in an interview with the Daily Economic News, emphasized the urgent need for adjusting the supply volume in the dairy industry. He suggested that the top twenty large-scale dairy farms in the country should proactively reduce their dairy cow herds by 15% to 20%.
Li Shengli also recommended appropriately reducing dairy cow production capacity in 2024 and increasing the culling of about 300,000 cows.
However, some viewpoints suggest that the decline in demand due to China’s economic slowdown is also one of the reasons for the overcapacity in dairy production. Milk is an essential ingredient for making desserts like ice cream and cakes, but due to the decrease in market demand, some ice cream factories have had to halt production prematurely. Current affairs commentator Wang Jian mentioned in his self-media program on July 4th that a Nanjing ice cream factory in Guangxi ceased production three months ahead of schedule this year due to declining sales, despite May and June being peak times for ice cream sales in mainland China. With ice cream prices at 5-6 yuan per unit not selling well, it reflects the current state of the mainland economy.