Although many indicators suggest that China’s economy and dairy industry have been cooling in the H1, this is far from the whole picture.

1. China’s Economy & Dairy Industry: Cooling?
Summary: Although many indicators suggest that China’s economy and dairy industry
have been cooling in the H1, this is far from the whole picture.
Tags: dairy, production, milk, liquid milk product, milk powder, producer, dairy product
The slowdown in China’s economy during H1 has impacted on the dairy industry as expected.
According to the National Bureau of Statistics (NBS), China’s GDP reached USD1.69 trillion
(RMB10.8 trillion) in Q1, up 8.1% over Q1 2011. Whilst in theory impressive this was the 5th
quarterly slowdown and the slowest rate of growth in almost 3 years. Recent estimates for Q2
tend to range between 7.2-7.5%, according to CCM International’s June issue of Dairy Products
China News.
Moreover many economists suggest that in reality a growth rate of about 6% in Q1 is likely to
have been a fairer reflection of the situation; this view is supported by various indicators which
have proven less positive, such as production volumes of steel and cement, total export values
and so on.
Electricity production — a key indicator for economic development — is a prime example: it stood
at 1,144.6 billion kwh in Q1, up 7.1% over Q1 2011. However production in May was 389.8 billion
kwh, just up 2.7% over May 2011. The June Purchasing Managers Index has slipped and all the
figures suggest that the economy is decelerating.
The Dairy Association of China (DAC) has quoted data from NBS giving the dairy industry’s
output at 5.47 million tonnes in Q1, up by only 5.8% over Q1 2011. However, this figure is
120,000 tonnes lower than that given for Q1 2011 by the China Economic Monitoring and
Analysis Centre (CEMAC) – this organisation, itself part of the NBS – hasn’t released its figures
this year, possibly due to the downtrend being seen.
In January-May, the output of domestic dairy products is being given as 9.37 million tonnes, up
7.1% over the same period of 2011 – this represents a slow down, as the growth rate in January-
May last year (vs. the same period in 2010) was 12.1%.
Similarly, liquid milk products represented 7.93 million tonnes – up 8.3% over the same period of
2011, compared with a rise of 11.6% in the first five months of 2011.

2. This situation exerts great pressure on the domestic dairy industry, with some northern provinces
now stockpiling milk powder. Some producers have also resorted to culling, and there have been
warnings that if the situation deteriorates as in 2009, the industry will be badly hit again.
However, this is a shortsighted perspective. Recently Mr. Zhang, Vice President of School of
Agricultural Economics and Rural Development at the Renmin University of China, noted that
China’s economy currently faces a cooling period due to the problems in the real estate and
equity markets — the 2 key drivers for the development of China’s economy in the past 10 years.
The management rights transfer of rural farmland is expected to be the key driver of China’s next
economic cycle. In China, the only way to obtain large amount of rural farmland is to invest in
agriculture. At present, the Chinese government has only hinted at its intentions in this respect on
CCTV – this is a likely area of policy developments once Mr. Xi Jinping takes over as State
President later this year. It is clearly timely for businesses to invest in agriculture now, hence the
recent expansion of groups such as COFCO, Modern Dairy, Fonterra and Yihai Kerry in the
agricultural sector.
Despite the present economic difficulties, the future dairy market potential is evident. In fact,
ongoing food safety concerns seems likely to represent a much more significant problem for the
local dairy industry: this is amply highlighted by processors who need to recombine relying on
imported milk powder whilst some local milk powder producers are left with capital tied up in
stocks!
Source: Dairy Products China News 1206
http://www.cnchemicals.com/Newsletter/NewsletterDetail_22.html
Content of Dairy Products China News 1206:
Further Revision of Standards for Dairy Products Likely
China’s Economy & Dairy Industry: Cooling?
Average Market Prices of Imported WMP & SMP Decrease
Dairy Processors Focus on Largescale Dairy Farms
Government Releases 12th Five-Year Plan for National Food Safety Standards
Government Strengthens Supervision of the Feed Sector
Maiquer Applies for Listing
Flower Cow Milk’s Development Strategy
Fengxing Dairy’s 60th Anniversary
Bright Dairy: Premium Development Strategy
Government Strengthens Livestock Breeding Subsidy
Hongxing Dairy Launches Value Range

3. Dairy Products China News, a monthly publication issued by CCM International on the
30th/31st of every month, brings you the latest information on new market dynamics, company
dynamics, new dairy products and consumption trend, new legislations and policies and raw milk
supply dynamics that are shaping the market.
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