Increased dairy consumption in China is closely tied to city growth with over 90% of dairy consumption taking place in urban centres, according to James O’Donnell of Bord Bia’s Shanghai office.

In a review of the Chinese dairy market O’Donnell says despite some slowdown in economic growth, where GDP growth is expected to be around 7% (very respectable however its lowest level since the 90s), China’s dairy demand is expected to increase.

He says the strong urbanisation trends are expected to continue and by 2050 China’s cities will represent 77% of the population, compared to 54% today.

O’Donnell says China’s dairy imports in reached record levels in 2014 with strong growth in liquid milk, cheese and butter, while imports of whey powders slipped slightly.

With a higher cost base and a fragmented structure, O’Donnell says Chinese farmers are having difficulty competing with imported milk prices.

He says according to the Chinese Ministry of Agriculture, local producer prices dropped by over 10% last year from RMB4.19/kg in January 2014 to RMB3.75kg in December.

O’Donnell says it is estimated that over 100,000 farmers have exited the business annually since 2009, and the national herd dropped below 14m head in 2014.

Demand for dairy products slowed in the second half of 2014, he said, where domestic output slowed and imports declined on the previous year.

According to O’Donnell total annual output from China showed little change, while imports of liquid milk and powders are expected to have increased for the full year.

He also says higher stock levels reduced imports in the second half of the year.