Why China Likes New Zealand Milk Powder

Recently, New Zealand Fonterra announced that it had detected botulinum bacillus in a concentrated whey protein powder produced in one of its factories. Some products of Dumex, Wahaha and other companies have been contaminated. At present, China has suspended the import of whey protein powder and concentrated whey protein produced by Fonterra from New Zealand, as well as powdered infant formula based on Ever Natural whey protein powder produced in Australia.

Fonterra can be described as a company where Chinese consumers “seek no heads”. It is almost synonymous with New Zealand dairy products, and New Zealand is China’s largest source of imported powdered milk. According to customs data, in the first half of this year, China imported 445,000 tons of milk powder, which was an increase of 24.8% year-on-year, and imported 371,000 tons of milk powder from New Zealand, an increase of 34.3% year-on-year, accounting for 83.3% of China's total imported milk powder.

In an interview with a reporter, dairy industry expert Wang Dingmian said that the China-New Zealand Free Trade Agreement, the quality of milk sources, and other reasons have made domestic companies more willing to accept milk from New Zealand. Some data also show that the Chinese market is relying on imported milk sources.

The reason why the reporter had used up the quota of New Zealand milk powder in a month and used New Zealand milk sources to occupy an overwhelming market share in China was a very important reason. In 2008, the "China-New Zealand Free Trade Agreement" was signed. According to the agreement, New Zealand milk powder was imported. Tariffs are removed within 12 years from the date of entry into force of the agreement. This year, New Zealand's import tariffs on milk powder have fallen to 5%. China implements special safeguard measures for milk powder originating in New Zealand, that is, quotas are restricted. Excess imported parts may also be subject to import duty at the MFN rate of 10%, while the ordinary country's import tax rate is 40%.

The last time the Fonterra Global Trade Dairy Auction price showed that the average price of New Zealand-made whole milk powder was US$5,058/tonne. Wang Dingmian introduced that the price of whole milk powder produced in the EU is about 4600-4700 US dollars / ton. New Zealand milk powder counts 10% of MFN import duty at 5563 U.S. dollars per ton, and EU milk powder import duty is 40%, which is calculated to be 6440-6580 U.S. dollars per ton. In contrast, domestic importers are more willing to choose New Zealand milk powder.

In recent years, domestic importers have rushed to book "import quota" targets ahead of schedule, which has led to the rapid increase of milk powder imported from New Zealand to the limit standard. According to the relevant announcement of the General Administration of Customs, since China implemented special safeguard measures on dairy products imported from New Zealand in 2009, the date that China's import of New Zealand milk powder triggered the import standard has become more advanced. It was August 13th in 2009, April 12th in 2010, March 9th in 2011, and February 22nd in 2012. Only on January 28 this year, it exceeded the 71,060.895-ton special safeguard measure trigger standard.

“Generally speaking, New Zealand began to enter the production of large-packaged milk powder in September. In order to grab quotas, domestic companies have already signed an import contract with New Zealand in October, and will ship in December, starting in January. It will arrive one after another," said Wang Dingmian.

The import of milk from the European Union is limited by milk quotas. In addition to the tax rate advantage, Wang Dingmian introduced that New Zealand cows are fed in a natural way with grazing, and the quality of the milk source is good. The flavor of the products produced is also relatively good and the quality is relatively stable. For Chinese companies, the reputation of New Zealand milk sources has always been good. To find quality problems, only need to provide inspection certificate, the payment is faster, and Chinese companies have imported milk from New Zealand for many years.

In addition to New Zealand, the source countries of domestic milk imports are mainly EU countries such as Australia, the Netherlands, France, and Italy, and the United States. Wang Dingmian said: “The U.S. dairy farming method is large-scale breeding, and the quality is relatively low. The feeding method of dairy cows in the EU countries is also natural grazing, but the EU’s milk production is a 'planned economy' since the mid-1980s. A quota system is adopted to counter EU milk excess capacity, and the quota system will be abolished in 2015. Therefore, the milk source imported from the EU will not have significant growth over the years."

"In addition, New Zealand imported bale powder packaging technology is better than the EU, making milk powder storage longer. This is also one of the reasons why domestic companies are more willing to choose New Zealand import bale powder." Wang Ding cotton said.

The report that the Chinese market relied on imported milk sources showed that in the 10 years before 2008, the annual average growth rate of domestic raw milk production was 17.4%. Since the melamine incident in 2008, the growth rate of China's milk industry has slowed down significantly, and the growth rate of raw milk production has plummeted. In 2008, it was 0.87%, in 2009 it was -0.98%, and in 2010 it was 1.56%. 2.1%, 1.5% in 2012.

At the same time, the domestic raw milk purchase price also lost its cost advantage. According to "Holstein" magazine's survey of milk prices in 20 countries in Europe, America, Asia and other countries from June to October in 2012, the equivalent of RMB 3.24 per kilogram. According to a fixed-point tracking survey conducted by Beijing Oriental Dairy Dairy Information Consulting Co., Ltd. on 28 scales of pasture in 28 provinces in China, the average price per kilogram was 3.90 yuan from June to October 2012.

Under the influence of various factors, domestic enterprises increasingly rely on imported raw milk powder. In the first half of this year, China imported 445,000 tons of milk powder. In 2008, this amount was only 140,000 tons.

Chinese-funded dairy companies have increasingly acquired overseas ranchers and processing plants. Bright, St. New Zealand has also chosen a destination for dairy companies to go to sea.

China's demand boosts the rapid growth of Fonterra At present, the vast majority of New Zealand dairy products imported from China come from the Fonterra Group. Yashili, Abbott, Mead Johnson, Wyeth and other milk powder companies are partners of Fonterra. Nestlé, Kraft and Danone also supply dairy products.

Fonterra Group is a global cooperative company established in 2001. Its 11,000 dairy farmers' shareholders account for 95% of New Zealand dairy farmers. At present, Fonterra is the world's largest dairy processing and exporting enterprise. 90% of Fonterra's products are exported to more than 140 countries and regions around the world, accounting for 7% of New Zealand's gross domestic product, controlling one-third of the world's total. Dairy trade is the most influential company in the international dairy trade.

The surge in demand in the Chinese market in recent years is undoubtedly one of the important factors in the rapid development of Fonterra. Fonterra Group's official website introduced: "In 2008, China and New Zealand signed a free trade agreement, which further strengthened the relationship between Fonterra and the Chinese market."

"Before 2005, the United States was able to influence the prices of international dairy products. After 2005, Fonterra's global trade dairy product auction prices became a trend indicator for the global dairy industry," said Wang Dingmian.

At present, China has suspended the import of whey protein powder and concentrated whey protein produced by Fonterra from New Zealand, as well as powdered infant formula based on Ever Natural whey protein powder produced in Australia. Wang Dingmian believes that this will not cause too much impact on domestic prices of milk powder. "Companies will naturally choose other, lower-priced sources of milk."