Milk prices are low and costs are high: why do small dairy farmers lose out to reconstituted milk?
Beijing, September 18 (China News Service, Qiu Yu) - Because selling prices are not enough to cover production costs, some dairy farmers in China are suffering losses. On top of the pressure of some companies refusing to buy milk and a flood of imported milk powder, dairy farmers also face an even more troubling problem——some companies use cheap reconstituted milk to pass it off as UHT milk or pasteurized milk.
Milk prices are sluggish; dairy farmers: we can't keep going
After raising dairy cows for 18 years, Dong Changlin said that this year he "can't keep going."
The cooperative in Hengjie Town, Ningbo City, Zhejiang Province, where Dong Changlin is located, originally had four dairy households and 1,250 cows, but now only Dong Changlin remains, raising the last 200 cows.
He supplies raw milk to a local dairy company. The company's purchase price is 4.3 yuan per kilogram, but the cost per kilogram is 5 yuan, meaning that every kilogram of raw milk produced loses 0.7 yuan. All told, the annual loss reaches as much as 1 million yuan.
Many dairy farmers had no choice but to exit. "The other three households sold all their cows last year," he said. When introduced, each cow cost 30,000 yuan; when sold, priced by slaughter value, each cow fetched less than 10,000 yuan, and the cooperative lost more than 20 million yuan.
In fact, compared with northern production areas, the raw milk price in Dong Changlin's town is still at a relatively high level. A report released by Industrial Securities shows that starting in July this year, milk prices in major northern production provinces and regions fluctuated for several consecutive weeks at 3.39-3.40 yuan/kg.
In addition to sluggish milk prices, the refusal of some dairy companies to buy milk has also dealt a blow to dairy farmers. Several dairy farmers in major dairy provinces such as Inner Mongolia and Heilongjiang complained that dairy companies buy raw milk in limited quantities every day, "not a single drop more."
Industrial Securities pointed out in its report that in the first half of 2016, the amount of milk refused or subject to limited purchase in major provinces reached 10% of total milk volume, and small dairy farmers and milk stations continued to be phased out.
Overcapacity in raw milk
One of the reasons dairy farmers have fallen into difficulty is overcapacity in raw milk.
Liu Jiangcheng once served as the director of a dairy farm in Shuangcheng District, Harbin City, a major dairy farming county. According to his recollection, a few years ago, consumer confidence in domestic dairy products recovered somewhat, and many people began importing dairy cows and investing in building farms.
According to data released by the China Dairy Industry Association in the "2016 Dairy Industry Situation Analysis and Work Ideas for the Next Year," in the 5 years from 2011 to 2015, China imported a total of 694,600 dairy cows, 1.67 times the import volume in the 10 years from 2001 to 2010.
Super-large-scale dairy farms were built one after another. Data shows that based on media reports collected in the first half of this year alone, there were 16 projects signed, started, or put into operation, including 11 farms with more than 10,000 head, with a total breeding scale of 268,000 head and total investment of nearly 12 billion yuan.
"Many people took out loans to raise cows," Liu Jiangcheng said. According to local policy, if the number of dairy cows exceeds 300 and other conditions are met, a subsidy of 3 million yuan can be obtained, but the farm can actually receive only half of the subsidy.
"Now that milk prices have fallen, most local dairy farmers want to sell their farms," he said.
In response, the China Dairy Industry Association pointed out that blind development of the dairy farming industry has led to overcapacity in raw milk, and in some places it has become difficult to sell milk. Dairy companies and the dairy farming industry have both come under great pressure.