• Fri
  • Oct 24, 2014
  • Updated: 11:28pm
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AGRICULTURE

Bumper Chinese milk stocks hammer dairy prices

With prices falling, producers are faced with China inventories and increasing supply

PUBLISHED : Wednesday, 06 August, 2014, 5:15pm
UPDATED : Thursday, 07 August, 2014, 2:48am

Hopes of a "white gold" rush fuelled by booming Asian demand for milk and other dairy products have been dealt a blow as swollen stockpiles in top consumer China and a flood of supply pummel dairy prices.

Global dairy prices have fallen more than 40 per cent since February, according to the Global Dairy Trade, an auction platform run by New Zealand's Fonterra Co-operative Group, which controls nearly a third of the world's dairy trade.

Fonterra said average prices fell 8.4 per cent to a two-year low at the last two-weekly auction on Tuesday as volumes surged by almost a third.

Much of the blame for plummeting prices has been linked to a surge in Chinese imports of milk powder in the second half of last year following a series of food scandals and supply worries.

"China purchased very, very strongly in late 2013/early 2014 and bought more than they needed as it turned out," said Hayley Moynihan, Rabobank's director of dairy research in Asia.

"Our view is that as a result of the retail price increases in 2013, there has been a slowing of overall demand growth ... and it has consequently left the Chinese market with some inventories to get through at the same time as domestic production has improved."

Milk powder is a highly sensitive topic in China after a scandal in 2008 when melamine added to baby milk killed at least six children and left thousands ill.

A botulism scare with a Fonterra dairy product, bribery allegations at France's Danone and record fines for price fixing by milk powder firms contributed to a spike in prices and brief shortage of milk powder in China in mid-2013.

China's imports of milk and milk powder jumped close to an annual 70 per cent to 830,000 tonnes in the first half of this year, according to customs data.

After steadily rising since March, stocks of milk powder held by China's large dairy firms reached a record high of about 400,000 tonnes in July, said Song Liang, a Beijing-based analyst.

"It will take about three to four months to digest those stocks, after taking into consideration the supply that is being added into the market," Song said.

China's burgeoning appetite for dairy produce from infant formula through to consumer goods such as yoghurt has encouraged a strong rise in production not just in New Zealand, but also in Europe and the United States.

Rabobank estimates global milk exports spiked by an extra seven billion litres, or 25 per cent, in the first six months of this year compared with a year earlier.

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