By Smart Agriculture Analytics

Shandong, Shaanxi and other regions still slaughtering dairy herds; milk cheaper than water

As major dairy companies reject milk, the plight of dairy farmers forced to pour out milk and slaughter their herds has not yet resolved. After the market imbalance made headlines in China and internationally earlier this spring, a number of policies have emerged that are aimed at pressuring major dairy companies to purchase milk. However, reporters from Economic Information have discovered that in some regions of Shandong and Shaanxi, dairy farmers are still under pressure, and many are slaughtering their herds to minimize losses.

After his contracts expired last fall, Shaanxi dairy farmer Yan Xili could not get his major buyer to renew. Yan and his neighbors’ dairies are now generating several dozen tons of surplus fresh milk supply that they are only able to sell to “milk dealers” for RMB 1.6-1.8 per kilogram (about US$0.26 to US$0.29 per 2.2 pounds). In order to stay afloat, dairy farmers have begun to slaughter their herds.

Farmers in Shandong’s Binzhou region are reporting milk prices as low as RMB 1.5 per kilogram. While this represents an RMB 0.5 improvement over prices in February, it still covers less than half the cost of milk production. One dairy farmer in the region, surnamed Yang, had a signed contract with a milk buyer, but when local authorities mandated an increase in prices, his buyer had the contract declared invalid.

China’s raw milk price has fluctuated dramatically since rising to an RMB 5 per kilogram high in the second half of 2013. Since then, many new entrants to the dairy market have emerged, and cheap, high-quality international imports have increased dramatically.

Dairy industry analyst Song Liang observed that China’s domestic dairy inventory is over 400,000 to 500,000 tons at present; major dairy companies are selling their consumer products at a 20% discount. Presently, Song noted, small and medium-sized dairies of between 100 to 1,000 head of cattle account for around 70% of China’s dairy operations. In the future, conditions for the smallest producers are likely to be increasingly unfavorable.

Bright Dairy breaks ground on RMB 1.2bn factory in Wuhan

On May 20th, Bright Dairy broke ground on a new processing plant in central China's Wuhan city, the capital of Hubei province. The factory is the result of a joint investment of RMB 1.2bn (roughly US$193.5 million) between Bright Dairy and Wuhan LinKong Port Investment Company. The factory is located in Wuhan's Linkong Port Economic & Technological Development Zone and is expected to become central China's largest and most modernized fresh milk processing plant.

The plant will occupy 190 mu (31.3 acres; 12.67 hectare) and will include a 6,000 head modern dairy. The processing facilities will 64 production lines, with daily production reaching 1,500 tons. By 2018, the plant is expected to have annual revenue of RMB 3.7bn and create more than 3,000 new jobs.

In Lhasa, Tibet, the world's highest-elevation modern ranch begins dairy production

Beijing Kingpeng Global Husbandry Technology Co. Ltd. has successfully built a standardized dairy center in the Chengguan District of Lhasa, Tibet. This project is part of Lhasa's Pure Land Health program, and is also the highest elevation modernized large-scale ranch in the world. Phase one of the dairy project has been completed, and the center's dairy cows have begun to produce milk. Project operators have already begun construction on phase two, which is expected to be finished by mid-2015.

All content was written and submitted by Smart Agriculture Analytics, Beijing.