China and India emerge as major dairy buyers

China and India are emerging as major buyers on the international dairy market and their increased presence could result in further volatility in Australian milk prices.

According to Rabobank’s Global Dairy Outlook, China and India account for more than one third of the world’s population and have been the engine room for global dairy growth in recent years.

The report said while local production in these two countries has more or less matched demand over most of the past decade, pressures from rising feed costs, the challenge of building safe supply chains and the sheer volume of growth required are now making self-sufficiency problematic.

Report co-author and Rabobank senior analyst, Tim Hunt, said in the wake of the melamine crisis it is now believed that China faces a structural market deficit that will be difficult to erode in coming years and even India is likely to call on the world market more frequently over the next three to four years.

“In terms of the general market outlook, China and India’s presence broaden our medium-term story as another source of demand has arisen for internationally-traded dairy products and that demand will be difficult to fill without a sustained period of high prices to encourage more milk contributions from higher cost regions,” Mr Hunt said.

He said dairy processors will find the opportunities presented by the rise of China and India difficult to ignore – in terms of both domestic growth and expanding trade requirements.

“Both markets offer a range of prospects for companies with well-considered strategies, whether seeking export opportunities, selling know-how and services, or investing on the ground to generate milk or dairy products.”

WAFarmers dairy section president Peter Evans said despite the current situation in the WA dairy industry, with Challenge Australia Dairy in administration, the trends reported by Rabobank would have a general influence on local producers.

He said more volatile international prices did have an indirect affect in WA but no where near the affect they would have on eastern states and New Zealand milk prices.

Mr Evans said as was seen two years ago when milk prices are high on a world scale Australian milk prices did become more volatile which also can result in increased production and a doubling of trade between countries.