The U.S. still only has a relatively small slice of the Chinese market — the European Union is China’s biggest foreign provider — but American whey, skim milk powder, cheese and other products are reaching new highs as China recovers from the COVID-19 pandemic and African swine fever.
U.S. exports, bolstered by competitive prices, are taking some market share from the Europeans and Australians, according to USDA officials. A new analysis from USDA’s Foreign Agricultural Service shows the U.S. exported 193,952 metric tons of dairy products to China from January through May this year — a 75% increase from the same five months last year.
“Every single month this year, (Chinese imports) are higher than they were the same months last year,” says Becky Rasdall, vice president of trade policy and international affairs for the International Dairy Foods Association. “It’s a confluence of circumstances. They have been investing a lot in their domestic production, but they still can’t meet their own demand.”
China is importing what it needs, but those needs are so large they are driving up world prices, according to the FAS report. China imported a total of $6.4 billion worth of dairy from January through May this year, a 17% increase from the first five months of 2020, according to FAS data.
Becky Rasdall, IDFA
In May 2020, China imported a total of 20,000 metric tons of skim milk powder. That doubled this year to over 40,000 tons. “SMP imports are on a new trajectory, having steadily climbed since February, and are now up 50% through May in comparison to last year,” according to the FAS analysis, which also provided a new forecast for all of 2021. “China’s imports of SMP are now forecast to reach a record 480,000 tons.”
And the U.S. is getting a big share of that market, given the tariffs in place, says Rasdall.
The fact that most of China’s retaliatory tariffs on U.S. dairy are still in place – a response to the Trump administration’s Section 301 tariffs levied on China in 2019 – makes the recent surge in trade even more remarkable.
Chinese importers are able to apply for exclusions to the 25% retaliatory tariff, but China has mostly provided those exemptions just for whey, according to a separate FAS report released in May.
“China continues to maintain Section 301 retaliatory tariffs on most U.S. dairy products,” according to the FAS report released from its Beijing office. “On September 14, 2020, China extended the tariff exclusions on whey for feed use.”
The U.S. exported 20,328 tons of skim milk powder — valued at about $52 million — to China from January through May, this year, according to data tracked by IDFA. Volume-wise, that’s about a 420% increase from the first five months of 2020 and a 940% increase from the same period in 2019.
China only imported about $61 million worth of SMP from the U.S. in the entire year of 2020.
Strong prices around the globe and comparatively lower U.S. prices are a major factor in sales to China as well as to other countries such as Vietnam, the Philippines and Mexico.
“During this year through May, (U.S.) shipments of SMP to Mexico are up 24% year-over-year reaching 134,000 tons,” according to FAS. “Since Mexico is forecast to import 350,000 tons of SMP — 13% higher than 2020 — U.S. shipments of SMP are expected to continue to accelerate. In addition, exports to the expanding import market of China have begun to grow rapidly.”
The cost of U.S. SMP dropped to below $2,900 per ton in June, compared to more than $3,400/ton for product from Australia, according to data maintained by the USDA’s Agricultural Marketing Service.
FAS has raised its forecast for total U.S. SMP exports this year to what would be a record level of 890,000 tons. That represents 70% of all SMP production that’s expected to be produced in 2021.
“People are getting back to normal,” Rasdall said about China’s recovery from the pandemic, “so consumer demand has not only rebounded, it feels like it’s skyrocketing relative to last year during the lockdown.”
And it’s not just skim milk powder. China’s cheese imports are also surging. FAS is now predicting China will import a record-breaking 180,000 tons this year. That would be a 38% increase from last year and a growth rate more than double of what it’s been over the previous eight years.
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“China is now expected to be the largest import market for cheese in the world, surpassing the United States,” says FAS. “The bulk of the market is supplied by New Zealand and the EU-28 accounting for 56% and 21% of the import market, respectively.”
The U.S. has never been a major cheese supplier to China, according to a USDA official, but even those exports are rising this year. The U.S. exported about $18 million worth of cheese to China in the first five months of this year, up from $16 million in the same period last year, according to IDFA data.
But the expansion of U.S. whey exports to China is even more significant. The U.S. shipped $149.4 million worth of all classes of whey to China from January through May, about 52% more than the first five months of 2020.
Much of those exports are feed-grade whey, which China continues to need as the country finishes rebuilding its swine herd after battling African swine fever. But the U.S. is also shipping more whey for human food ingredients as Chinese food service companies recover from the pandemic, according to a USDA official.
“They’re still in the swine herd rebuilding stage — nearing the end of it — and demand for whey-feeding continues to rise,” said Rasdall.
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