In recent times, the milk powder market has experienced a notable decline in prices, reflecting the complex interplay of economic uncertainties and shifting demographics worldwide. The most recent Global Dairy Trade (GDT) auction bore witness to a substantial plunge in prices of both whole milk powder (WMP) and skim milk powder (SMP). Anxieties stemming from China’s potential decrease in demand have cast a shadow over the global milk powder market, prompting experts to closely monitor the situation.
The GDT Index, on August 15, registered a sharp 7.4% drop, marking its lowest level since April 2020 – a time when pandemic concerns were at their peak and global dairy markets were rife with uncertainty. Particularly vulnerable was the WMP category, experiencing a staggering 10.9% decline in average GDT prices, plummeting to a seven-year nadir. While GDT SMP prices also saw a dip, it was comparatively less severe, with a 5.2% decrease to its lowest valuation since January 2019.
At the heart of this downward spiral is China, the world’s second-largest economy, which is currently grappling with the looming specter of deflation. Typically succeeding episodes of hyperinflation, deflation arises from diminished consumer expenditure, leading to weakened demand and subsequently, falling prices.
Betty Berning, a seasoned analyst with the Daily Dairy Report, emphasized, “The waning purchasing power of China, a major player in the international dairy market, is poised to stifle export demand for dairy products.” While the United States might witness less impact on staple dairy consumption due to diminishing purchasing power and high-interest rates, luxury food purchases and dining-out experiences are likely to bear the brunt of the economic shifts.
China’s internal dynamics have also contributed to the global situation. A significant surge in domestic milk production has bolstered the availability of fresh milk within the country, thereby reducing its reliance on imported milk powders. Sarina Sharp, an astute analyst, highlighted the unsettling signs of dwindling milk powder consumption in China and the additional burden of economic stagnation on the country’s dairy demand.
Notably, demographic shifts have played a pivotal role. Reports suggest that Chinese women are expected to give birth to fewer than 8 million babies this year, marking a 16% reduction from the previous year and a substantial 40% drop from 2018 figures. This decline in childbirth rates has been accompanied by diminished factory output and a significant deceleration in retail sales across China.
China’s pivotal role in influencing global dairy prices cannot be understated. The ramifications have already reverberated through the New Zealand dairy industry, where processors have had to revise prices downward to navigate these challenges. Even the largest dairy cooperative in New Zealand, Fonterra, has recalibrated payments to suppliers, mirroring the struggle to combat declining WMP demand from China. Should Chinese demand not witness an uptick in the near future, the road to recovery for global prices appears to be an uphill battle.
In summary, the global milk powder market is confronting a confluence of factors, including economic uncertainties and shifting demographics, with China’s role as a primary influencer in dairy prices adding complexity to the situation. The industry’s resilience in the face of these challenges will be instrumental in shaping the trajectory of future prices.
