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Rebalancing of the Chinese milk market: The implications for global trade
Thursday, 6 February 2025
Chinese milk production is showing signs of slowing and there is optimism for domestic demand growth. Lower supplies of milk are shifting trade dynamics for the largest dairy importing country in the world.
China rapidly increased domestic milk production in recent years, with the goal of achieving self-sufficiency reached by 2023. This was followed by over-supply, leading to a sharp drop in imports.
However, 2024 saw domestic milk production progressively decline year-on-year, with Rabobank estimating a 5% reduction in production for the second half of 2024 as low farmgate prices and high production costs led to industry exits. Additionally, a heatwave in Q3 further impacted supplies. Production in 2025 is expected to fall by a further 1.5%, as low margins are forecasted to continue, with most of the reduction taking place in the first half of the year.
The Chinese economy remains challenged, although domestic demand for dairy is expected to see some recovery. Rabobank expects 2025 to see dairy consumption increase by 1.2% year-on-year, though this is compared to weak 2024 levels.
The demand-supply balance in China begins to improve
Import volumes of dairy products continued to show lower volumes for 2024 as a whole, although imports turned positive in November 2024 for the first time since July 2023. In December, import volumes increased by 18% year-on-year (TDM), with growth in nearly all categories, particularly dried products.
Driven by lower production levels, Rabobank expects China’s net imports of dairy products to rise by 2% in 2025, mostly in the latter half of the year, as domestic stocks weaken.
New Zealand dominates Chinas total dairy import basket, accounting for 46% of imports in 2024, in volume terms. The EU supplied a significant 31%, whilst the UK made up 1%. China plays a significant role in global trade movements, and its production patterns impacts global dairy trade and supplies available on the world market.
Efforts to regulate production is expected to gradually reduce the differences between supply and demand, although a steady return to domestic consumption growth means that we are not likely to see a surge of imports in 2025.
Other geopolitical factors, such as the EU/China Trade dispute and US changes to trade policy remain key watchpoints. On the downside, the tariffs announced by President Trump on China could further weaken the Chinese economy which could suppress demand.
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