Slower Chinese dairy import demand anticipated

Q3 of this year witnessed a decline in global dairy prices similar to that felt in Q2 according to Alan O’Brien of Bord Bia’s Shanghai Office who cited latest Rabobank figures.

He said that this global decline in prices was attributed to a combination of retracted demand and increased supply by the Big 7 exporting nations (EU, US, New Zealand, Australia, Brazil, Argentina, Uruguay).

On the supply side milk production in the Big 7 continued to expand strongly in Q3; a combined 4.3% (additional 3.2bn litres) in the three months leading up to July with half this increase coming from the EU. On the demand side purchasing by Chinese buyers on the international market tapered back in Q3 whilst in Russia the continued import ban from major suppliers also had an impact on the market.

Depressed Outlook for China’s Import Demand Q4 2014

According to O’Brien forward purchasing by Chinese buyers has eased since April as buyers continue to work through inventories accumulated at the end of 2013 and Q1 of 2014.

He said it must also be highlighted that China’s economy is currently in a phase of restructuring as the government focuses on rebalancing the economy to stabilise growth rates and remove overcapacity; this will continue to see controlled reductions in GDP and personal consumption to 7.7% and 8.1% per annum over the next two years, and further reduction after 2015 (IMA 2014), which may impact demand and buyer behaviour over this period.

O’Brien commented that on the supply side, according to Rabobank China’s domestic production improved in Q3 bolstered by a mild summer, high prices and economies of scale gained from consolidation of small “backyard” farming units into large industrial units (an on-going government focus). As a result of improved local production and the accumulation of inventories at the start of the year, Q4 is not likely to see Chinese buyers return to the market in force, which will reduce import volumes.

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