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The Chinese economy hasn’t recovered from the impacts of COVID-19 and is experiencing an economic downturn, according to dairy analyst Song Liang.
Song was speaking at a dairy seminar in Shanghai, the commercial capital of China during a trade mission organised by Bord Bia.
The cohorts worst affected by the economic downturn is young people and young families and this is reducing their disposable income.
Older people and retirees are least affected because they have a fixed pension, he says.
Song says that the spending patterns of young people are changing and that retailers and manufacturers need to change also in order to keep up with the market.
He also says that the more affluent older generation are now a huge growth area with sales of adult milk powder and functional, nutrient rich foods, which contain dairy ingredients.
In terms of the younger market, he says that young, middle class Chinese people are more health conscious than previous generations and while dairy fits into their lifestyle, they are limited by what they can spend.
Chinese milk supply
As Chinese domestic milk production continues to increase, there is less reliance on imports, particularly of milk powders, a former staple of Chinese dairy imports.
However, producing milk in China is expensive and Song says that imported milk products will continue to have an advantage in terms of price.
With an oversupply of powders in the Chinese market due to falling consumption and increases in milk supply, Irish dairy exporters were encouraged to focus on higher spec specialist protein-based powders to satisfy the growing adult functional foods market.
This new market was emphasised throughout the trade mission to China, which focused on dairy.
Speaking to the Irish Farmers Journal in Shanghai, CEO of Bord Bia Jim O’Toole said;
“We know from meeting customers this week that there is a demand for ingredients that we know we can supply that they are not able to produce themselves so this is reason to be confident.”
The birth rate in China has gone from 15m babies born in 2015 down to 9m in 2023 and this has had a big impact on demand for infant milk formula.
In 2018, infant milk formula made up 95% of all Irish dairy exports to China and this has fallen to 62% in 2023 as the product mix has diversified.
However, trade issues are now threatening some of that diversified trade with China launching an investigation into certain types of dairy exports from the EU, with over €50m worth of Irish dairy exports in the firing line.
Buying habits
The route to market continues to evolve in China, with significant changes in buying habits brought about by the COVID-19 pandemic.
“People couldn’t go to stores, so ordering in food became much more popular. What we are seeing now is that some people don’t use their kitchens at all and instead order food in which is ready to eat,” Song told the Bord Bia seminar.
He says that consumers still seek out individualisation of these products, in terms of flavour, colouring and pack size which can pose a challenge to more traditional distribution channels which relied on central kitchens.
“They need to face the challenges of more decentralisation. Not every company has successfully adopted to this so it is a sensitive topic,” he says.
The use of digital technology is extremely high in China with mobile apps playing a major role in commerce with consumers using apps to order and pay for food purchases.
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