China’s Weakening Economy Spells Trouble for Dairy
China’s economy has slowed significantly, which does not bode well for global dairy prices. The country’s second-quarter GDP grew 6.3%, compared to the same quarter in 2022, which was still smaller than analysts expected. The number was sobering, considering that second-quarter GDP last year grew by only 0.4%, which was the second smallest growth rate in the past 10 years, according to Betty Bering, analyst with the Daily Dairy Report. The lowest GDP reading occurred in 2020 during the height of the pandemic. If GDP slows much further, the country could miss its 2023 GDP goal of 5%, which is already considered modest, she said.
“China has been importing fewer dairy products driven in part by its faltering economy,” Bering said. “Dairy demand in the country has sputtered despite the Chinese government’s efforts to try to restart its economy following its severe Covid-19 lockdowns. While the Chinese economy began to rebound in December 2022 as pandemic-era controls were lifted, it weakened in recent months. Other economic data points also suggest trouble is brewing in China, and shrinking demand for dairy could temper global dairy prices for some time to come.”
Chinese exports have also waned. Year-over-year exports from China fell 12.4% in June after declining 7.5% in May. The country’s real estate crisis also persists. CNN noted that earlier in July China extended measures it implemented in 2022 to stimulate its real estate sector, which makes up 30% of the country’s GDP. According to the New York Times, in Nanchang, nearly 20% of the homes are vacant, the highest rate of vacancy among 28 large and midsize Chinese cities.
Looking at Chinese dairy imports, whole milk powder (WMP) purchases rose 37.6% in June, compared to the previous year, to nearly 105.6 million pounds, according to Trade Data Monitor. Following a dismal first four months for WMP imports, June’s significant increase marked the second consecutive month of growth compared to the prior year, Berning said. However, year-to-date through June, China’s WMP imports of 610 million pounds trailed the same period in 2022 by a whopping 45%, or nearly 500 million pounds.
“With a 90% market share, New Zealand has borne the brunt of the decline in WMP imports, and tepid Chinese demand has been cited as a critical reason for low milk prices in the 2022-23 and 2023-24 seasons,” Berning noted.
Chinese imports of ultra-high temperature milk (UHT) were down in every month this year on a year-over-year basis. Imports of UHT milk declined by more than 17% in June. China’s skim milk powder imports have held up better than WMP and UHT milk. Through June, year-to-date imports at 460.4 million pounds were up nearly 21% compared to last year. In June, China’s SMP imports of 63.6 million pounds climbed a hefty 20% above June 2022 but fell short of June 2021 imports of 75.5 million pounds.
Looking a bit longer-term, Berning said China’s population could have reached a tipping point, with the birth rate falling and death rates inching higher as the population ages. While China will continue to be a huge market for dairy commodities, its importance could lessen particularly if the country continues to pour money into its own dairy industry, she added.
