Over Half of China's Dairy Farmers Are Seeing Red Because of Lower-Priced Foreign Milk Powder
Yicai Global
/SOURCE : Yicai
Over Half of China's Dairy Farmers Are Seeing Red Because of Lower-Priced Foreign Milk Powder

(Yicai Global) July 20 -- More than half of China's dairy cattle breeders are losing money, with some so desperate they are selling cows for meat, as the nation's dairy farmers buckle under the pressure of low-priced foreign milk powder.

Some 51 percent said they had a loss in March, the latest period for which figures are available. That is 5.8 percent more than a year earlier. Dairy cattle numbers have declined 12 percent from last year, according to figures from nationwide milk stations.

Xinjiang Western Animal Husbandry Co. [SZE:300106] had its first loss of CNY13 million in the first quarter, while Xinjiang Talimu Agriculture Development Co. [SHA: 600359], whose main business includes dairy farming, fell into the red by CNY17 million in the first three months of the year despite a 31 percent gain in revenue.

These and other dairies are struggling as some businesses reconstitute milk using imported milk powder and limit or even decline to buy local fresh milk. In April, the global average price of raw milk was CNY1.44 a kilo, while the average for fresh milk in China's 10 main milk-producing provinces was CNY3.47 a kilo. Due to price gap, China last year imported 547,000 tons of large-packet milk powder, which can be converted to more than 3.8 million tons of fresh milk.

China Modern Dairy Holdings Ltd. [HK:1117] recently issued a profit warning, saying it expects to lose at least CNY400 million (USD60 million) in the first half, compared with a profit of CNY507 million in the same period last year. Last July, the dairy issued 477 million new shares in a third-party placement to Kohlberg Kravis Roberts & Co. LP and China's CDH Investment, giving the private equity firms a 9 percent stake in Modern Dairy.

Some industry insiders suggest the government should enhance product standards so as to direct companies to use local fresh milk as much as possible, while striking against reconstituted milk so as to reduce the import of large-packet powder.

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