Low-end milk shortage leads to months of inflated prices in China

Milk prices have been steadily rising in China for the past 13 months owing to a shortage in milk supplies and lower quality "bagged" milk remaining out of stock nationwide, reports the Guangzhou-based Southern Metropolis Daily

Sales agents working in supermarket channels in northern China said that the country's bagged milk supply has been tight since August and has been out of stock since September. Supplies of premium milk, on the other hand, remain sufficient, but its price has continued to swell, with prices rising by over 10%.

The short supply of low-end milk and the price hikes in premium milk are a result of the considerable shortage of raw milk. Major domestic dairy companies, such as Mengniu Dairy and the Inner Mongolia Yili Industrial Group have also admitted to the milk scarcity.

A survey conducted by the Chinese Academy of Agricultural Science showed that the number of milk cows bred in the Amur River region and Inner Mongolia dropped by 10%-20% in July and August this year, compared with the same period a year ago.

Raw milk prices in China's top ten major raw milk production areas rose by 13.7% to 3.74 yuan (US$0.61) per km year-on-year in September, according to data released by the country's Ministry of Agriculture.

Dairy companies have attempted to ensure the steady production of high-end milk with current raw milk supplies, which has caused the low-end milk shortage. The firms have no option but to cut down the production for low and medium-end milk products to make sure that the supply for high-end milk is enough, said an executive at a milk supplier in northern China. The profit margin for high-end milk products is 20%, whereas it is merely 2% for low-end milk products, he added.