Why US dairy exporters should fear New Zealand as China demand slump continues

The US notes New Zealand's skim milk powder exports to Southeast Asia set a record last year.

China’s dairy appetite and its impact on New Zealand is one of the biggest factors American dairy exporters have to contend with this year, says the US Dairy Export Council.

In its latest blog discussing the strength of Southeast Asian (SEA) dairy markets this year, the council said while supply and demand continued to suggest this region was a solid, long-term driver for international dairy imports, how much the US could benefit from its growth depended on factors like regional economic performance and Chinese demand.

“How much of that demand the US can capture hinges on several factors, but one of the biggest is China’s dairy appetite and its impact on New Zealand.

“Sharp declines in Chinese whole milk powder (wmp) demand starting in 2022 (Kiwi wmp shipments to China fell by nearly 430,000 metric tonnes from 2021-2024 as a result) necessitated that New Zealand shift its dairy product mix (channeling more raw milk into skim milk powder/butter) and increase its focus on SEA.”

The region is the second-largest market for US non-fat dairy milk and skim milk powder products.

The council noted New Zealand’s skim milk powder exports to the region rose 62% or 77,248 metric tonnes (mt) between 2012 and 2024, and set a record last year of 202,035 mt.

US shipments of skim milk powder fell 31% over the same period.

The council said the global inflation spike in 2022 significantly undercut SEA dairy demand and imports in 2023 and recovery had been slow, with inflation rates stickier than expected. Slower GDP growth in the region in 2023 had not helped.

By the end of last year, inflation had moderated to a little over 3% and GDP growth had rebounded to 4.6% during the year, with dairy demand starting to look up, the council said.

SEA economic growth was forecast at 4.7%, slightly up on last year, and inflation should continue to ease, it said.

“In addition, China’s dairy imports finished 2024 on a high note and could preoccupy more of New Zealand’s milk supply in the months ahead.”

The council also flagged that New Zealand and Australia could target “prime” US dairy export markets if China’s economic stimulus efforts fail.

China is New Zealand’s biggest dairy export market. New Zealand is the world’s biggest dairy exporter; the US is third-biggest after Germany.

“If the Chinese Government’s efforts fall flat and dairy demand fails to rebound, not only will it impact US shipments to that country it will also heighten US competition around the world by forcing New Zealand and Australia to target prime US dairy export markets.”

While the council was confident it was only a matter of time before Chinese dairy consumption returned to growth, it was less confident this would happen this year “given the magnitude of the economic challenges”.

“In addition, with the [Chinese] domestic milk production sector having shown it can grow quickly when needed, its response to a demand rebound needs to be closely monitored and could limit the size of the import response.”

The council said the state of China’s dairy farm sector provided some potential tailwinds for import demand.

Chinese farmgate milk prices had fallen for 24 months straight due to oversupply, a result of aggressive dairy sector expansion and an extended period of weakened domestic demand that continued today.

“While slower milk production may encourage stabilisation within China, a broader import revival remains contingent on other key factors, most notably the country’s economy rebounding.”