THE boom for dairy heifer exports to China could be over, according to Rabobank’s recent report Chinese dairy heifer demand – has the ship sailed?
Rabobank said structural changes to China’s dairy industry, where smaller farms have been replaced with larger-scale operations, has dampened demand for dairy heifers.
“Last year, we saw Australia’s exports of dairy heifers hit record levels, with China accounting for more than 90 per cent of Australia’s heifer exports,” said Michael Harvey, report author and Rabobank senior dairy analyst.
“Now, it’s only about 40pc, keeping in mind we are only three-quarters of the way through the year.
“Chinese demand has since dropped off, with trade volumes to China falling sharply throughout 2015, and prices also taking a hit in the vicinity of 30pc.”
The 2008 food safety crisis in China triggered the Chinese government to restructure their agriculture industry, with government assistance and tax incentives causing a shift to large-scale dairy operations in the country.
Farms that have been developed thus far now have more ability to raise herds themselves rather than relying on imported animals to boost herd numbers.
Recent lower milk prices and higher costs at the farm gate in China has led to a slowdown in the market.
“Reduced profitability has seen some new large-scale farm developments being postponed or cancelled, which has led to a backlog of dairy heifers in global supply chains,” Mr Harvey said.
The dairy cattle export market has seen a significant slow-down in the volume of cattle being sent to China over the past eight-to-nine months, said Elders general manager for live exports Cameron Hall.
“Dairy trade with China has been cyclical in nature over the past 12 years,” Mr Hall said.
Local dairy farmers should not panic, as China will remain a major destination for Australia’s dairy heifers.
“2014 was such a unique year (for dairy heifer prices) … Expectations around pricing needs to be lowered,” Mr Harvey said.
“We will always be a preferred supplier to China, due to our proximity and genetics, but if you’re thinking you need 2014 prices to make exporting worthwhile, you need to think again.
“(Dairy farmers) will need to consider whether they would like to expand their milk supply locally versus exporting their heifers overseas.”
Mr Hall said the dairy cattle trade with China will probably gain some momentum again, but no one knows how much it will get.
“Over the past few years, trade into China has probably been overheated, and now it’s softened.”
While the report said it is important not to neglect the Chinese market, the south-east Asia dairy demand is expected to increase by more than three billion litres between 2014 and 2020.