(Yicai) June 26 -- The price of fresh milk in China has been falling for 27 straight months, the longest period of decline since 2010, amid overcapacity. The price is set to keep falling as capacity is still increasing, according to the government.

Fresh milk cost CNY3.39 (47 US cents) per kilogram in China’s major producer regions last month, down 12 percent from a year ago and 2 percent on the prior month, according to data released by the agriculture ministry on June 24.

Its first-quarter reference price was CNY3.60 per kg, according to Hebei province’s dairy association. That was the same as the first quarter of 2018, the lowest point of the last slump. Prices fell further in April and again last month, dropping below the breakeven point, a large dairy producer in the province told Yicai.

China’s major fresh milk producers broadly posted losses or lower profit in their annual financial reports for last year. China Youran Dairy Group had a net loss of CNY1.1 billion (USD151 million), while Austasia Group’s reached CNY489 million (USD67 million). Net profit at China Modern Dairy Holdings sank 69 percent to CNY175 million (USD24 million). That at China Shengmu Organic Milk tumbled 79 percent to CNY86.1 million (USD12 million).

Capacity reduction in the industry has lagged behind market expectations. Most of the capacity is in dairy producers’ self-built farms and large ranches invested in by listed companies, according to Song Liang, an industry analyst.

These ranches have greater economic strength and ability to resist risks, and feed prices have been falling recently, so the willingness to reduce capacity is not very high, Song added.

Capacity is expected to grow more slowly this quarter and it may start falling in the next quarter, but the further rebalancing that is needed may take longer, Song said, noting that the timing depends on next year's market conditions. 

Editors: Dou Shicong, Tom Litting