Australian dairy processors need to focus on product innovation and category growth in China, according to a visiting Rabobank dairy analyst.
Sandy Chen, who is based in Shanghai, recently visited Australia to share information about dairy trends in China.
Although there had been a slow-down in Chinese demand in recent years, Mr Chen said there were still a lot of opportunties because the market was growing.
‘‘Australia has an FTA arrangement with China to ensure market access, and we don’t expect the gap between domestic supply to close, as cost of production in China remains high.
‘‘It’s a must to ensure food safety and maintain or raise the profile of Australian dairy products in China and embrace consumer trends of trading up,’’ Mr Chen said.
‘‘There needs to be more effort in product innovation and category expansion to drive the value growth and (to a) lesser extent, volume growth.
‘‘Staying on top of regulatory change is important. It is wise to team up with credible local partners, and be aware that China’s growth will be at a slower pace.
‘‘In the Asia-Pacific region there are other markets which will see higher growth in dairy consumption compared to China.’’
Asked about the risk of China developing its own internal milk supply as Australia supplies cattle and dairy technology, Mr Chen acknowledged the country had been importing a lot of dairy heifers, and China had some farms holding between 5000 and 15000 head in herds.
‘‘The build-out started in 2009 and 2010 and investment peaked about 2013 and 2014, but over the last few years there has been a dramatic slow-down in further expansion.
‘‘Over the last three years milk price has been on a declining trend, so profitability has become thinner and not providing incentive for further investment.
‘‘We have also been seeing an exit of smaller to medium farms. They represent just below 50 per cent of herd size,’’ Mr Chen said.
‘‘Over the last few years production growth in China has been very low, almost flat.
‘‘Constraints in production include land availability, feed costs escalating (we have to import a sizeable amount of hay to yield good quality milk), this means cost of production will remain high in the forseeable future.
‘‘The average cost of milk production on large dairy farms is about 52 to 53 cents ($US), whereas in Australia it is just over 30 cents ($US).’’
Mr Chen said environmental protection was also being paid more attention by the Chinese government, so some of the hidden costs in the past would start to surface during next few years for large corporate dairy farms.