China is struggling with an oversupply of milk on the market. The state only supports large herds

Chiny zmagają się z nadpodażą mleka na rynku. Państwo wspiera tylko wielkie stada

China produces too much milk and is unable to utilize the raw material. In 2023 overproduction reached 36 percent. Dairy product prices are falling and consumption is also falling. As a result, dairy plants terminate contracts with smaller suppliers or simply stop receiving raw materials. 60% of farms record losses, while the state only supports large producers – we read on the La France Agricole website.

Milk prices are falling, production costs are rising

According to Jean-Marc Chaumet, economic director at the cross-industry French dairy association Cniel, the situation of dairy in China is not good. In the face of overproduction and falling consumption, large dairy farms are resisting, but everything indicates that smaller producers must give up.

As the French expert argues, in 2023 milk overproduction increased to 36%. The consumption of milk and dairy products has decreased both as a result of the Covid pandemic and subsequent lockdowns, as well as scandals related to the contamination of products, e.g. powdered milk. Unlike the rest of the world, there is no inflation in China. Meanwhile, the price of milk has been falling since 2021, but production costs continued to increase, for example with the increase in feed prices, e.g. soybean meal and corn.

Small producers pour out milk

As a result, in 2023, 60% of dairy farms recorded losses. Problems with selling milk from farms mean that milk is often poured into ditches or dairy cows are slaughtered on farms.

The Chinese government pursues a policy of food self-sufficiency, but favors large, modern agricultural enterprises. Producers who keep more than 300 dairy cows can count on any help. However, support amounts are actually sufficient to survive for herds of 3,000 animals, with each additional 500 animals attracting an additional million yuan (€130,000).

Chinese policy is therefore directed against small farms that are considered insufficiently profitable. In 2023, 164 agricultural projects were launched, 70% of which concerned herds of 10,000 animals or more, says Jean-Marc Chaumet.

Dairies are buying up herds

Therefore, large producers expand their herds and produce more, while smaller producers have to eliminate production. However, due to low milk prices, large herds depend on state support. Dairies are also experiencing a crisis due to low consumption and falling milk prices, so they are buying out large breeding farms. In this way, they secure supplies, but they can also benefit from state support.

For example, Yili, China's largest milk processing plant, owns 40% of shares in the Youran group – the largest cow breeding group in China, which maintains a herd of 500,000 cows. Youran is having financial difficulties, so Yili buys cheap milk from her. Therefore, the dairy recorded a 10% increase in profits in 2023. Therefore, competition in the market is decreasing and consolidation is taking place in the entire sector.