The announcement last week that China has targeted EU dairy exports in an escalation of the trade spat between both sides is a worrying development for Irish dairy farmers. However, a look at changes that have already happened around trade with China over recent years, and the country’s plans for its own dairy industry, suggest that the Asian nation was already well along the path to becoming less critical for Irish farmers and food exporters.
Data from Bord Bia shows that Ireland exported €376m of dairy products to China in the 12 months to June 2024. That’s down from €488m in the same period in 2020. This drop in the value of exports to the country came as the overall value of Irish dairy exports increased which means that while China accounted for 9.3% of Irish dairy exports four years ago, it accounted for 6.3% in the year to June 2024 (see Figure 1).
The drop in value has been accompanied by a fall in the volume of products shipped to China with the country’s imports of Irish dairy falling from 106,000t in 2020 to 66,000t in the last 12 months, leaving it standing at 4.2% of the total.
China accounting for 4.2% of export volume and 6.3% of export value does mean that the country is buying higher-value products from Ireland. Infant foods continue to make up the majority of exports by value, accounting for €230m of the €376m total. That, however, is far below the peak of €618m for the product seen in 2017.
To put that another way, infant formula exports to China accounted for over 15% of all Irish dairy exports in 2017. In the 12 months to June this year, it accounted for less than 4% of all Irish dairy exports.
To put it plainly, China is still an important export market for Irish dairy exports, but the country’s relative importance has been falling for years.
Key markets
Ireland’s key markets for dairy exports are still the markets that are closest to us. The EU and the UK account for around 55% of exports, which makes sense as countries almost always trade most with those that are closest to them.
If infant formula to China was the big export story seven years ago, the expansion of dairy trade with the US is the big recent export success for Irish dairy. While there was a temporary spike in infant formula exports to that country last year due to production difficulties in North America, the gains in the US cheese and butter market should not be underestimated.
Exports of cheese have more than doubled to €91m over the last four years while the success of Kerrygold continues to shine, with butter exports up 60% to €307m in the 12 months to June. In fact, the growth in the US market has more than made up for the loss of China sales (see figure 2).
China has been ramping up domestic production in recent years, with USDA figures showing the country produced 41 million tonnes in 2023, a 28% increase from 2019.
Analysis from Rabobank suggests that the country will continue to expand domestic production over the next decade and while Chinese self-sufficiency is unlikely over the medium term, a continued drop in import demand from the country is almost certain.
Expanding dairy output
The push to expand dairy output is not without its challenges for China as companies find themselves with supply/demand mismatches.
Authorities there have recently moved to try to shore up domestic demand for liquid milk as smaller processors forecast losses for 2024.
While the largest operations such as Yili and Mengniu, both in the top-10 dairy companies in the world, continue to trade well, newer second-tier operations are struggling with costs as dairy prices in the domestic market weaken.
Tianrun Dairy Co, for example, has seen its share price drop by more than 40% in the last year. Interestingly, that share price increased by almost 10% in the wake of the announcement of the investigation into EU dairy imports.
The investigation into EU dairy exports to China is not good news for Irish dairy farmers. However, the importance of that market has waned in recent years which means the potential hit to farm incomes here is much lower than it might have been.
On the face of it, the targeting of dairy is an extension of the trade spat between the EU and China over electric cars. China’s ambitions for domestic dairy expansion may also be a factor in the country’s decision to target the sector for investigation.
The rapid expansion in output there has led to some difficulties with supply and demand mismatches. New companies are producing too much of the wrong product and losses are starting to mount.
If China wants to help maintain dairy output growth, it will need to continue to support those companies. Should the country put tariffs on some dairy imports, it could lead to higher prices in China and therefore give a boost to the bottom line of the struggling domestic producers.
For China, the investigation therefore can be seen as targeting two birds - EU EV tariffs and support for domestic production – with the one stone.
For Irish dairy producers, it means that the most likely outcome is that exports to China will continue to fall.
But, as we’ve shown, that has already been happening for years and so long as other markets continue to expand, there really shouldn’t be too much to worry about.
InShort
Chinese dairy imports from Ireland are far below peak.China is trying to support its domestic industry.Ireland has many more important markets.Increased exports to US more than make up for loss of Chinese sales.
The announcement last week that China has targeted EU dairy exports in an escalation of the trade spat between both sides is a worrying development for Irish dairy farmers. However, a look at changes that have already happened around trade with China over recent years, and the country’s plans for its own dairy industry, suggest that the Asian nation was already well along the path to becoming less critical for Irish farmers and food exporters.
Data from Bord Bia shows that Ireland exported €376m of dairy products to China in the 12 months to June 2024. That’s down from €488m in the same period in 2020. This drop in the value of exports to the country came as the overall value of Irish dairy exports increased which means that while China accounted for 9.3% of Irish dairy exports four years ago, it accounted for 6.3% in the year to June 2024 (see Figure 1).
The drop in value has been accompanied by a fall in the volume of products shipped to China with the country’s imports of Irish dairy falling from 106,000t in 2020 to 66,000t in the last 12 months, leaving it standing at 4.2% of the total.
China accounting for 4.2% of export volume and 6.3% of export value does mean that the country is buying higher-value products from Ireland. Infant foods continue to make up the majority of exports by value, accounting for €230m of the €376m total. That, however, is far below the peak of €618m for the product seen in 2017.
To put that another way, infant formula exports to China accounted for over 15% of all Irish dairy exports in 2017. In the 12 months to June this year, it accounted for less than 4% of all Irish dairy exports.
To put it plainly, China is still an important export market for Irish dairy exports, but the country’s relative importance has been falling for years.
Key markets
Ireland’s key markets for dairy exports are still the markets that are closest to us. The EU and the UK account for around 55% of exports, which makes sense as countries almost always trade most with those that are closest to them.
If infant formula to China was the big export story seven years ago, the expansion of dairy trade with the US is the big recent export success for Irish dairy. While there was a temporary spike in infant formula exports to that country last year due to production difficulties in North America, the gains in the US cheese and butter market should not be underestimated.
Exports of cheese have more than doubled to €91m over the last four years while the success of Kerrygold continues to shine, with butter exports up 60% to €307m in the 12 months to June. In fact, the growth in the US market has more than made up for the loss of China sales (see figure 2).
China has been ramping up domestic production in recent years, with USDA figures showing the country produced 41 million tonnes in 2023, a 28% increase from 2019.
Analysis from Rabobank suggests that the country will continue to expand domestic production over the next decade and while Chinese self-sufficiency is unlikely over the medium term, a continued drop in import demand from the country is almost certain.
Expanding dairy output
The push to expand dairy output is not without its challenges for China as companies find themselves with supply/demand mismatches.
Authorities there have recently moved to try to shore up domestic demand for liquid milk as smaller processors forecast losses for 2024.
While the largest operations such as Yili and Mengniu, both in the top-10 dairy companies in the world, continue to trade well, newer second-tier operations are struggling with costs as dairy prices in the domestic market weaken.
Tianrun Dairy Co, for example, has seen its share price drop by more than 40% in the last year. Interestingly, that share price increased by almost 10% in the wake of the announcement of the investigation into EU dairy imports.
The investigation into EU dairy exports to China is not good news for Irish dairy farmers. However, the importance of that market has waned in recent years which means the potential hit to farm incomes here is much lower than it might have been.
On the face of it, the targeting of dairy is an extension of the trade spat between the EU and China over electric cars. China’s ambitions for domestic dairy expansion may also be a factor in the country’s decision to target the sector for investigation.
The rapid expansion in output there has led to some difficulties with supply and demand mismatches. New companies are producing too much of the wrong product and losses are starting to mount.
If China wants to help maintain dairy output growth, it will need to continue to support those companies. Should the country put tariffs on some dairy imports, it could lead to higher prices in China and therefore give a boost to the bottom line of the struggling domestic producers.
For China, the investigation therefore can be seen as targeting two birds - EU EV tariffs and support for domestic production – with the one stone.
For Irish dairy producers, it means that the most likely outcome is that exports to China will continue to fall.
But, as we’ve shown, that has already been happening for years and so long as other markets continue to expand, there really shouldn’t be too much to worry about.
InShort
Chinese dairy imports from Ireland are far below peak.China is trying to support its domestic industry.Ireland has many more important markets.Increased exports to US more than make up for loss of Chinese sales.
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