Some preliminary assessments on the impact of corona virus on Chinese dairy industry

Interruption of the whole supply chain

While the impact of the current pandemic on milk demand is short-term, real time of instability and persistent psychological effects can lead to significant losses in consumption, after which The impact is back on processing, production and import.

How a 30-day interruption may affect milk consumption

Closing retail stores, reducing shopping flow at food retailers (partly offset by online retailing) has a major impact on retail sales during the Chinese New Year holiday. As a result, retail inventories – which are often at record highs prior to the Lunar New Year – continue to stock. Delivery capacity of online retailers recovered after the holiday season but transportation problems remain difficult in many places.

Based on interviews with retail sales results in China, Rabobank estimates that the impact within 30 days could reduce liquid milk consumption by 2-4% compared to the same period in 2019 for the whole 2020. , assuming that part of traditional retail sales is offset by online retail.

During the Lunar New Year, premium liquid milk products, often given as gifts, are severely impacted, although they are likely to be offset by increased sales from basic products for home consumption. If this situation persists, the market may have a reversal process – low-grade – at least in the first quarter of 2020, negatively affecting retail sales.

Because the food and beverage industry is one of the hardest hit sectors, consumption through this channel is likely to suffer the sharpest decline.

Cheese consumption in China is heavily dependent on food service channels. Rabobank estimates that the 30-day intermittent impact could reduce China's 2020 cheese imports by at least 5% compared to 2019, or more than 6,000 tons. Estimated cheese consumption is based on imports of nearly 115,000 tons in 2019.

Distributors experience slower inventory exit stages through retail channels. As a result, they delayed replenishing goods from processors. Additional warehousing operations are also affected by road control and labor shortages after the Chinese New Year holidays. If inventory delays persist, retail inventories will begin to decline during the rest of the first quarter.

Production and processing are largely disrupted by road control and reduced consumption

Tightening road traffic control is being implemented to curb the spread of disease. This situation disrupts domestic logistics activities and even within the province, affecting the transport of raw milk in many areas. Small and medium-sized farms seem to be more affected than large ones, resulting in milk spillage. The central government issued circulars in late January 2020 and early February 2020, declaring the importance of stabilizing food supply, production, distribution and logistics but it will take time to The situation returned to normal. The current situation may put more pressure than usual on milk prices, which often decline after the Chinese New Year holiday. Rabobank believes that milk supply contracts between milk processors and large production farms will be complied, so a stable supply of milk remains in the market. However, the price of raw milk delivered outside the contract tends to decrease more sharply than the contracted milk price. In some areas, production farms are experiencing a tight supply of food due to the unusually long Tet holiday and partly due to road traffic control. The persistent state will have an impact on milk production.

News reports and cross-checking with industry information suggest that the drying of raw milk has started to appear in some areas of China and the drying capacity is relatively high due to The retail demand is down and the distribution is interrupted.

How will China's milk import in 2020 take place?

In 2019, China's WMP whole milk imports reached nearly 670,000 tons, an increase of 30% compared to 2018, just lower than 2014 and import of skimmed milk reached a record high of 340,000 tons, up 23% in the same period. comparative period. Rabobank predicts that China's dairy imports in the first half of 2020 will decrease by 3% compared to the same period in 2019 and only increase by 1% in the whole 2020. However, the corona virus's performance easily changes this forecast. At least, in the short term, any current situation will reduce China's demand for milk materials after having strong imports in December 2019 and January 2020, slowing inventories, milk ratio. drying goes up and with ending stocks in 2019.

In the sensitive scenario analysis, China's annual milk demand will decrease by 1% in 2020, leading to a decrease of 11% in imports compared to 2019; and a 5% drop in demand will lead to a 25% decline in imports in 2020.

Given the significant impact on the food and beverage industry today, the widespread effect can make exporters dependent on this distribution channel switch from cheese, butter and cream production to whole milk and powdered milk. near, leading to increased supply of powdered milk, especially if China still reduces the level of inventory.

According to Rabobank