China is currently experiencing a significant surplus of milk due to declining birth rates and a sluggish economy, which have led to reduced demand for dairy products. Despite efforts by the government to boost the dairy sector, including promoting consumption and encouraging farm expansions, the results have been counterproductive.
Milk consumption per capita in China fell from 14.4 kg in 2021 to 12.4 kg in 2022, reflecting changing consumer preferences and economic constraints. Meanwhile, milk production surged to nearly 42 million tons last year, exceeding the government’s target of 41 million tons for 2025.
As a result of the oversupply, milk prices have dropped below the average production cost of approximately 3.8 yuan ($0.54) per kg, forcing many smaller farms to close and larger producers to reduce their herds. For instance, Modern Dairy reported a 50% reduction in its dairy cattle herd in the first half of this year, resulting in a net loss of 207 million yuan ($29 million).
Additionally, imports of dairy products into China, primarily from New Zealand, the Netherlands, and Germany, have decreased by 13% year-on-year in the first eight months of 2024. Milk powder imports, which represent the largest segment of dairy imports, fell by 21%.
The combination of high production costs, reduced consumer demand for premium dairy products, and a legacy of past food safety scandals continues to challenge the Chinese dairy industry.