Chinese farmers are struggling to sell their milk as demand has plummeted due to the country’s declining birth rate and consumers' efforts to save money, according to Reuters.
Meanwhile, Chinese dairy farms have ramped up production in recent years, forcing smaller producers out of business and reducing milk imports, despite China being the world’s largest importer of dairy products.
The oversupply of milk is a consequence of Beijing's initiatives to bolster food security. These measures included encouraging dairy consumption and urging farmers to boost milk production. However, China's ability to export excess milk is limited due to high production costs.
The slowdown in China’s economy has further dampened demand for premium dairy products like cheese, cream, and butter, contributing to a decline in overall milk consumption. The country's aging population has also played a role. Milk consumption fell from 14.4 kg per capita in 2021 to 12.4 kg in 2022, based on data from the China Statistical Office.
Despite falling demand, milk production has surged by more than a third over the past seven years, reaching nearly 42 million tons by the end of 2023 (up from 30.39 million tons in 2017), surpassing the government’s 2025 target of 41 million tons. China now ranks as the third-largest milk producer in the world.
Milk prices have dropped since 2022, falling below the average production cost of about 3.8 RMB ($0.54) per kg, leading to the closure of many unprofitable farms. Some farms have also reduced livestock by selling cattle for meat, even though the beef market is already saturated.
China Modern Dairy Holdings Ltd, one of the country’s leading milk producers, reported halving its herd size in the first half of 2023 and posted a net loss of 207 million RMB ($29.07 million).
Li Yifan, head of dairy products for Asia at financial services firm StoneX, said, “Farms are losing money on both milk and meat sales.”
While China imports dairy products mainly from New Zealand, the Netherlands, and Germany, imports dropped 13% year-on-year in the first eight months of 2023, totaling 1.75 million tons. Milk powder imports, the largest import item, fell 21% to 620,000 tons.
Rabobank predicts a 12% decline in net dairy imports by the end of 2024 and warns that the ongoing recession in the dairy sector could impact imports next year.
China’s dairy industry grew rapidly after the government’s 2018 call to expand farms and milk production as part of a food self-sufficiency strategy. The number of farms has since multiplied, and hundreds of thousands of Holstein cows have been imported.
The national economic slowdown and demographic crisis, including a record-low birth rate of 6.39 per 1,000 people in 2023, have compounded the decline in milk demand, particularly for infant formula. The New Zealand A2 Milk Company reported an 8.6% drop in the volume of China’s infant formula market for fiscal year 2024, with further declines expected in 2025.
In 2018, Beijing also urged consumers to shift from “drinking milk” to “eating milk” by increasing their consumption of higher-value dairy products like cheese, cream, and butter. However, these efforts have largely failed, as consumers prioritize reducing food costs.
One solution to the milk surplus is to convert it into milk powder. Despite these efforts, the surplus reached 300,000 tons by mid-2023—double the amount from the previous year, according to the Chinese Dairy Industry Association.
Though Chinese dairy exports rose 8.9% in the first half of 2024 to 55,100 tons, it remains a small fraction of the overall surplus.
On a positive note, the domestic milk surplus has helped Beijing restrict imports of dairy products like cheese and cream from the European Union, particularly amid trade tensions with the EU. However, these measures are unlikely to make a significant dent in the surplus.
