Milk prices keep falling, why is the dairy industry suffering growing pains?
The dairy industry suffers growing pains
The impact of cheap imported dairy products and slowing consumption growth have "collided," and difficulty in selling milk has begun to appear
"The price of raw milk has been falling all along. Two years ago it climbed to 4 yuan per kg, and now it is about to fall below 3 yuan. At this rate, we will soon be losing money." Recently, Lu Xianglai, a dairy farmer at the Hope Dairy Farming Community in Xingtang County, Hebei Province, has been very worried. Unable to withstand the continued fall in milk prices, Qiu Shengming, a large-scale farmer in Jinan, Shandong, who has 1,800 dairy cows in stock, is preparing to painfully sell some cows at a low price. The situations of Lu Xianglai and Qiu Shengming are not even the worst. As milk prices keep falling, practices such as feeding fresh milk to pigs have begun to appear in some places.
Vice Minister of Agriculture Yu Kangzhen said that at present the loss-making share of China's entire dairy industry has exceeded 50%. According to fixed-point monitoring by the Ministry of Agriculture, in March the loss-making share of dairy farming reached 51%, up 5.8% year on year; at the same time, dairy cow inventory fell 11.9% year on year. More seriously, this situation is still continuing and still spreading. So much so that the dairy industry has been listed by some banks as a "high-risk industry."
Analyzing the causes of losses in the dairy industry, Yu Kangzhen said that over the past two years, as the impact of cheap imported dairy products and the slowdown in dairy consumption growth have "collided," the entire dairy industry has faced challenges, product sales have been sluggish, and the loss-making share has continued to expand.
On the one hand, international milk prices and domestic milk prices are severely inverted. Data released by the International Dairy Economics Society show that in May this year, the average global raw milk price converted into RMB was 1.44 yuan per kg, while the average raw milk price in China's 10 main producing areas was 3.46 yuan per kg. On May 3, auction prices at New Zealand's Fonterra Global Dairy Trade showed whole milk powder at USD 2,176 per tonne, 58.2% lower than the highest price of USD 5,208 per tonne in 2013. Recently, the landed price of imported milk powder was 18,000 yuan per tonne, while domestic prices were close to 30,000 yuan per tonne.
On the other hand, the growth rate of dairy product consumption has slowed. Taking liquid milk as an example, according to National Bureau of Statistics data, in 2015 total national liquid milk sales were 27.389 million tonnes, up 3.6% over the previous year. But compared with average annual growth of 5.1% during the "12th Five-Year Plan" period and average annual growth of 11.1% during the "11th Five-Year Plan" period, the increase was noticeably low. At the same time, consumer confidence in domestic milk is still in a stage of recovery.
When a gadfly bites a dairy cow, the cow will have growing pains. Gao Hongbin, president of the China Dairy Association, said that at present the dairy industry's growing pains are prominently manifested as "threefold difficulties."
One difficulty is low milk prices. At present, the purchase price of fresh milk at large-scale farms has fallen 10% year on year, and at small-scale farming communities and farms, the purchase price of fresh milk has fallen 15% year on year.
Another difficulty is the difficulty of selling milk. Under the downward pressure on consumption growth, dairy companies have begun to limit purchases of fresh milk, with the limited-purchase volume accounting for about 10% of total fresh milk production. Some large-scale farming enterprises, also due to sales difficulties, have had to spray raw milk that has not been processed into fresh milk into milk powder, with the amount of spray-dried powder accounting for about 5% of total fresh milk output.
There is also another difficulty: large losses. At present, the loss-making share of dairy enterprises is something not seen in many years.
Yu Kangzhen said that at present, the difficulties facing the dairy industry are related to the broader macroeconomic environment and the cyclical fluctuations of international dairy product prices, but the main reason is still that our own competitiveness is not strong enough, the costs of factors such as feed and labor are rising quickly, the ability to reduce costs and increase efficiency through technology and management is improving slowly, the integration of dairy farming and dairy processing is still not high, the interest linkage mechanism is not close, and consumer confidence in domestic dairy products is still not strong.