For decades, global dairy markets followed one simple rule: when China bought more, prices rose everywhere else. As the world’s largest importer of milk powder, China’s demand dictated returns for dairy farmers in New Zealand, the European Union, the United States, and Australia. Any slowdown in Chinese buying immediately rattled global prices. That rule is now breaking down.
China is undergoing a profound structural shift in its dairy sector - one that has transformed it from a demand-driven importer into a country grappling with surplus production and increasingly looking outward for export markets. This turnaround is reshaping global dairy trade, intensifying competition, and placing fresh pressure on international prices.
A Decade-Long Push for Self-Sufficiency
The roots of China’s dairy transformation lie in a sustained policy push for food self-sufficiency. Accelerated after pandemic-era supply chain disruptions, Beijing encouraged rapid expansion of domestic milk production through scale, technology, and industrialisation.
Small backyard farms have steadily given way to large, industrial “mega-farms”. According to industry and government estimates, industrial operations now account for more than two-thirds of China’s total milk output. These farms rely on high-yield imported cattle, improved genetics, automated milking systems, and centralized feed management to maximize efficiency.
The result has been a dramatic rise in production. China’s milk output reached nearly 42 million tonnes in 2023, exceeding the government’s target of 41 million tonnes two years ahead of schedule. For policymakers, it marked a major achievement in reducing reliance on imports. (Comparatively India's milk production has crossed 245 million tonnes, but most of it is consumed domestically)
When Supply Outruns Demand
China’s production growth has sharply outpaced consumption. Per-capita dairy consumption in China has declined in recent years, falling from 14.4 kg in 2021 to 12.4 kg in 2022. The slowdown reflects multiple structural factors: a weakening economy, cautious household spending, changing dietary habits, and - critically - China’s record-low birth rate, which has reduced demand for liquid milk and infant nutrition products. This widening gap between supply and demand has created a persistent surplus in the domestic market.
Raw milk prices have fallen below production costs, with prices at times dropping under 3.8 yuan per kilogram, widely seen as the break-even level for many farmers. Loss-making operations have been forced to cull herds, delay expansion, or exit the industry altogether. Smaller farms have been hit hardest, while even large corporate producers have reported losses and herd reductions.
Industry analysts increasingly describe China’s dairy glut as structural rather than cyclical - the result of long-term capacity expansion colliding with slowing consumption.
Imports Slide as Domestic Output Rises
As domestic milk availability surged, China’s appetite for imported dairy weakened. In 2023, overall dairy imports fell by about 12%, while imports of whole milk powder - once the backbone of China’s dairy trade - plunged by nearly 38%.
New Zealand remains China’s largest dairy supplier, but shipment volumes have declined sharply. The European Union and Australia are facing similar pressure. For exporters long dependent on Chinese demand, the decline has forced a painful reassessment of market strategies.
From Buyer to Seller: China Enters Export Markets
The most striking consequence of China’s dairy surplus is its emergence, however modest, as an exporter. Exports of Chinese dairy products, led by milk powder, rose sharply in recent years, reaching around 70,000 tonnes in 2024, roughly one-third higher than the previous year. Powdered milk accounts for nearly half of these shipments, with destinations including Hong Kong, Southeast Asia, Africa, the Middle East, and parts of Central Asia.
While China’s export volumes remain small compared with global giants like New Zealand, the EU, and the US, the shift is symbolically and strategically significant. What was once the world’s most important buyer is now competing, particularly in price-sensitive emerging markets. Major Chinese dairy firms such as Yili and Mengniu are actively expanding overseas, leveraging scale and competitive pricing to secure footholds in new regions.
Global Ripples: Prices, Competition, and Strategy
China’s dairy pivot is sending ripples across global markets. First, additional Chinese supply is adding to downward pressure on global milk powder prices, at a time when supply from other exporters is also rising. Analysts warn of prolonged weak pricing, increasing volatility for farmers worldwide.
Second, competition is intensifying in emerging markets across Asia, Africa, and the Middle East - regions that were once growth engines for exporters from Oceania, Europe, and the US. China’s geographic proximity, lower logistics costs, and aggressive pricing pose new challenges for traditional suppliers.
Yet a paradox remains. While China has surplus liquid milk and powder, it still relies on imports for high-value dairy products such as specialty cheeses, butter, and premium infant formula. Urban consumers continue to associate foreign brands with quality, safety, and prestige, keeping these import segments relatively resilient. China’s dairy turnaround marks a turning point - not just for its own farmers, but for the global dairy economy.
This shift comes at a time when the United States and the European Union are themselves under growing pressure to push milk and other agricultural exports into global markets. Faced with domestic oversupply, climate-related cost pressures, and slowing consumption at home, both the US and the EU have intensified efforts to secure market access in Asia, Africa, and the Middle East through trade agreements and export promotion. In this crowded landscape, China’s emergence as an exporter is particularly significant: it is not just adding volume to global supply, but competing directly with Western producers in the very markets they are targeting for growth. What was once a buyer absorbing surplus from the US and Europe is now part of the competitive equation, complicating export strategies and amplifying price pressure across global agricultural trade.