Dairy dominoes: How China’s increased dairy self-sufficiency is reshaping global trade

Let's use a metaphor to understand the interconnectedness of the global dairy sector. Imagine a row of dominos, each representing a key player in the industry. The first domino symbolizess China, the dairy demand domino; the second represents New Zealand, the dairy supply domino; and the third stands for whole milk powder (WMP), the dairy commodity domino. When the first domino falls, it triggers a chain reaction, causing each subsequent domino to topple. The speed and direction of this reaction are influenced by the marketplace, which acts as the friction in this analogy.

China's monumental achievement in self-sufficiency in milk production, a staggering 11m metric tons from 2018 to 2023, has left an indelible mark on the global dairy sector. This has been starkly evident in the country’s dwindling WMP imports, which nosedived from an average of 670,000 metric tons (2018-2022) to a mere 430,000 metric tons in 2023.

New Zealand, the primary dairy exporter to China, is grappling with a formidable challenge. The country is now compelled to seek out alternative markets for the milk equivalent of nearly 150,000 metric tons of WMP. This substantial amount – almost 1.3m metric tons of milk, equivalent to 6% of New Zealand’s annual milk production – is now in search of import destinations in the form of WMP, skim milk powder (SMP), milkfat, or cheese.

This situation has inevitably intensified competition among the existing dairy-exporting regions and led to lower-than-average global milk powder prices. In the long term, will China’s elevated self-sufficiency serve as an example to be emulated in dairy-deficient regions, or will it create a market opportunity for importers previously priced out of the marketplace?