Domestic milk firms facing tough time

Domestic milk powder producers are facing increasing competition from foreign competitors, who at present charge bulk buyers 6,000 yuan ($951.44) to 8,000 yuan less per ton. Experts noted Tuesday that foreign products will continue to sell for lower prices this year and the market for domestic producers will further contract.

Prices of bulk milk powder imported from New Zealand have been less than 24,000 yuan per ton since August, and bulk milk powder from European countries costs only 23,000 yuan per ton. However, the price of domestic milk powder is as much as 34,000 yuan per ton.

"Major domestic milk powder producers, such as Feihe International, Bright Dairy & Food Co, and Wondersun Dairy Co, have chosen to reduce production in order to avoid losses," Wang Dingmian, a dairy expert and chairman of the Guangzhou Dairy Association, told the Global Times Tuesday.

Zhao Zhong, managing director of Heilongjiang Bright Songhe Dairy & Food, a subsidiary of Bright Dairy & Food, said that the company has purchased an average of 420 tons of raw milk per day this year, compared with 520 tons per day in 2011, 21st Century Business Herald reported Tuesday.

Some dairy farmers in Northeast China, which accounts for around 80 percent of China's total raw milk production, have chosen to sell their cows amid the shrinking demand.

"The prices of imported bulk milk powder have dropped 20 percent to 30 percent compared with the average price in 2011, as demand is shrinking due to the gloomy economic prospects," Song Liang, a dairy industry analyst at the Distribution Productivity Promotion Center of China Commerce, told the Global Times.

However, domestic raw milk is selling for comparatively higher prices as a result of an increase in the prices of cattle feed - which accounts for over 70 percent of dairy farmers' costs - and also the low level of mechanization of domestic dairy farming.

Furthermore, some local governments in major milk producing areas have stipulated a minimum price for raw milk, in order to protect the profits of dairy farmers, and this has further squeezed milk powder producers' profits.

Song noted that at present foreign milk powder producers have taken a share of over 80 percent of the market in China's first-tier cities, and they are eying the second- and third-tier cities as well.

"Domestic milk powder producers are losing the market to foreign companies, partly because of recent scandals over quality problems in the sector," said Song. Experts noted that foreign bulk milk powder will keep its price advantage, at least for the rest of this year. "Total imports of bulk milk powder are expected to top 600,000 tons this year, compared with 480,000 tons in 2011," said Song.

Most of the major domestic bulk milk powder producers are also burdened by high inventories.

"The government should consider establishing a temporary milk reserve in order to help these companies," Song noted.