Overcapacity plagues China’s dairy sector as demand dumps

China’s dairy industry is facing an overproduction issue due to weak consumer demand, as agricultural authorities chip in to ramp up subsidies and tackle the looming crisis.

Dairy farmers in multiple provinces — including Hebei, Inner Mongolia, and Shandong — are experiencing difficulties in selling fresh milk and are facing losses amid low selling prices, domestic media outlet Beijing Business Daily reported Saturday. Many farmers have started dumping their produce and slaughtering livestock to stymie further losses, the report said, citing several industrial insiders.

The issue came into the spotlight after Yuan Yunsheng, the secretary of the Dairy Association of Hebei Province, bemoaned the woes of local farmers and dairy business owners on social media. In the now-deleted post, the senior official said the decreasing sales of dairy products, coupled with the halt in milk supply to schools amid the coronavirus outbreak, has led to an overstocking of raw milk in the supply chain.

Diary farmers pour milk in Suzhou, Anhui province, January 2023. From @第一合肥 on Weibo

“A dairy farm represents endeavors accumulated over generations and it’s heart-wrenching to hear those farmers questioning whether they have to pour out milk and kill cattle once again,” Yuan said. “I can’t help thinking, why can’t we jump out of this pitfall and how can the chain jointly stand up to the risks in the face of disruptions?”

Industrial data showed the price of raw milk in 10 major production hubs on Dec. 28 stood at 4.12 yuan ($0.61) per kilogram, a 4.2% decrease from the same period last year. In Hebei, authorities allowed the produce to be sold for as little as 3.85 yuan per kilogram, according to the authorities, leaving little room for a profit margin.

To address the dairy farmers’ plight, agricultural regulators in Hebei on Friday announced it would hand out 40 million yuan in subsidies to milk processing companies by Jan. 20. The statement urged those enterprises to purchase the produce from farmers as much as possible by extending their business contract in safeguarding their interests and the market order.

In the now-deleted social media post, Yuan called for consumption to be encouraged by issuing coupons to consumers, which would alleviate the pressure along the supply chain. He also urged for regulatory efforts to be improved in the management of the volatile industry.

“Officials should better base their planning of local dairy farms on the production capacity of those milk processors,” Yuan said. “To protect the farmers, they could cut their incentives to dairy enterprises if they call off their contracts with the farmers at difficult times.”

Editor: Bibek Bhandari.

(Header image: VCG)

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