China's Milk Powder Glut Turns Importers Into Competing Suppliers

China's skim milk powder imports sit at multi-year lows on a 12-month rolling basis, and the China milk powder surplus behind that number was built inside the country's own processing plants rather than by weaker consumption. Chinese dairy demand has continued to run on the positive side year over year, so the missing imports reflect a change in what China makes, not in what China eats and drinks. Loss-making whole milk powder production pushed processors toward cream, butter and skim milk powder, and manufacturers moved their formulas onto liquid skim milk at the same time. As a result, skim turned into a domestic byproduct, and some of China's largest processors are now looking outward with it.

YiFan Li heads dairy for StoneX across Asia, where he sets and runs the firm's market strategy for a dairy sector that is expanding and restructuring at the same time. His coverage takes in Chinese processing economics, regional import flows and the food service channels that move butter, cheese and skim through Asian supply chains, which is the ground this surplus sits on.

Key Themes from the Discussion

• Chinese skim milk powder imports are at multi-year lows on a 12-month rolling basis and broadly flat.
• Chinese dairy demand remains positive year over year despite weaker headline import numbers.
• Top Chinese processors are looking to export surplus dairy ingredient to the rest of the world.

Watch the Full Conversation

Chinese Processors Rebuilt Their Product Mix and Created a Skim Surplus

Chinese dairy processors turned away from whole milk powder roughly two years ago after the product delivered heavy losses on their financial statements, and they moved output toward cream, butter and skim milk powder instead. Cream found a ready home because the food service industry was strong, which left skim arriving as the leftover rather than the target. The demand side moved at the same time, and as YiFan Li puts it, "the guys who previously using skim milk powder, most of them have already switched and adjusted the formula to using liquid skim milk". Specifically, that combination stripped out the need for imported powder on two fronts at once, supply up and formulation demand down. For buyers outside China, the practical consequence is that the import gap is structural, not a pause in consumption waiting to correct itself.

China's Top Processors Are Taking Surplus Ingredient Toward Export Markets

Total Chinese consumption of skim milk powder is shrinking even as overall dairy demand grows, and the surplus is now large enough that the country's processors are looking beyond their own market. Domestic production has held up rather than declined, so the excess is not being absorbed at home. That turns a country the trade has long treated as a destination into a potential origin, which changes the competitive picture for exporters selling into Asia. According to Li, "when they look at the total consumption of skim milk powder in China is definitely shrinking, and that's why the import number shows that a significant drop on Chinese skim milk powder imports, and some top processors are even looking to export their ingredient to the rest of the world".

Asian Food Service Demand Keeps Pulling Butter and Cheese Imports Higher

"If we look at the Asian country, the food service sector, the butter and cheese import, almost all countries that they import significant more amount than last year", Li says. China itself illustrates the pattern, producing more butter and cream domestically while still importing heavily, with Oceania-origin ingredient carrying a premium that brands use in higher-end products and in their marketing. Conversely, mid and lower-end retail lines that do not label ingredient origin clearly need more affordable and budget-friendly inputs, which splits the import market into two distinct grades of demand. Across the wider region, bakery, tea applications, ready-to-drink beverages and the fast food sector are all growing, supported by a return to normal travel both domestically and from overseas visitors. Indonesia, Vietnam and Malaysia are running notably strong against prior year levels, evidenced by import volumes that sit well above where they stood a year earlier.

 

--- Written by Frédéric Guétin, StoneX Media Producer

--- Expert: YiFan Li, StoneX Head of Dairy, Asia