The displacement of massive volumes of New Zealand dairy product from the Chinese market is not a “major issue” for Ireland, a senior Ornua official has insisted.

Chinese imports of whole milk powder (WMP) collapsed by close to 250,000t over the last five years, forcing more product from New Zealand and Australia onto markets traditionally supplied by Europe.

A recent Rabobank report claimed that New Zealand has significantly expanded exports of WMP to Algeria, the world’s second-largest importer and a traditional purchaser of EU product.

The Kiwis have also scaled up their output of skim milk powder (SMP) by 40%, putting pressure on exports from the EU and the US, Rabobank claimed. However, Seamus Greene of Ornua played down the significance of increased New Zealand activity in markets outside of China.

“If you have the world’s largest dairy market seeing such a dramatic drop-off in requirements since early 2021, that’s going to have a significant impact,” the Ornua official conceded.

Concern

“It’s a concern but it’s not a major issue,” Greene said.

“It is causing us some headaches but it is something we’ll manage as part of the normal course of business,” he maintained. Greene, who is managing director of Ornua Ingredients Ireland, said dairy markets had improved since May on the back of static global milk supply.

“We are forecasting that the overall milk supply globally will be flat for 2024,” Greene said.

“We feel supply is going to remain constrained, particularly in the second half of the year. And even though demand is a little bit sluggish and a little bit mixed, we are expecting to see prices remain fairly stable in the short-term,” he added.

A significant bounce in farmgate milk prices will require a sustained improvement in consumer sentiment and spending, Greene maintained.

Food inflation and food affordability continued to “overhang” dairy markets, Greene pointed out.

Ornua is forecasting that milk prices will remain largely unchanged in the short-term.

“I suppose the concern we have is that uncertainty does persist around the impact of higher prices on consumer demand overall,” he explained.

“That is making us a little bit nervy with regard to demand recovery,” the Ornua official admitted. Although it is expected that the marquee sports events in Europe this summer – such as the Euros in Germany and the Olympics in France – will boost discretionary consumer spending, Greene said he was still waiting to see concrete evidence of improved demand.

Meanwhile, the Rabobank report on China noted that the Asian giant grew its dairy output by a staggering 11m tonnes between 2018 and 2023. The country’s WMP imports plunged as a consequence, falling from an average of 670,000t between 2018 and 2022 to 430,000t in 2023.

“This caused the New Zealand dairy supply domino to cascade into the European market, the traditional WMP and SMP supplier for Algeria,” explained Mary Ledman, global strategist for dairy at Rabobank.

Dairy exporter

While Ledman does not expect China to become a net dairy exporter of dairy produce, she claimed the country would be extremely influential in commodity markets.

“It [China] nevertheless poses a significant challenge to the key dairy exporting regions, which have significant exposure to the Chinese market and will need to continue to adapt to the changing market dynamics,” the Rabobank official claimed.

“While the cost of production will play a role in competitiveness, shorter supply chains and increased trade protectionism could potentially offset these costs.

“China’s increased self-sufficiency may serve as an example for other countries aiming to reduce reliance on trade,” Ledman added.