WASHINGTON, Nov. 30, 2016 - China’s thirst for fluid milk imports is rising, but red tape in Beijing and Washington is preventing most U.S. exporters from tapping into the growing market, according to U.S. government and industry officials. 

A new report by USDA’s Foreign Agricultural Service (FAS) predicts that China will import 900,000 metric tons of milk in 2017, a whopping 39 percent increase over the expected 650,000 tons for this year and almost double the 460,000 tons that it imported in 2015.

But don’t expect any immediate increases in U.S. exports. The European Union, New Zealand and Australia already provide most of China’s import needs and are expected to boost exports to meet the rising demand, according to the FAS. 

There is disagreement over who’s at fault for the lack of U.S. exports. 

FAS puts the blame squarely on China, which in 2014 announced new food safety regulations that require all foreign exporters be registered and certified by their domestic regulatory agencies (the FDA in the U.S.). 

“The United States remains a minor player in the Chinese fluid milk market, with less than 1 percent of market share,” FAS said in the report. “U.S. imports are constrained in part by new food safety regulations that stifle U.S. exports to China. The main culprit is China’s new registration regulation requirements which can keep new exporters out of the market for years while awaiting regulatory approval. Once this regulatory bottleneck has been resolved, U.S. imports of fluid milk are expected to increase, due to overall good perceptions about the high quality and safety of U.S. food products in China.” 

However, Jaime Castaneda, with the National Milk Producers Federation, said much of the blame belongs to FDA.

“We disagree that the culprit is just China,” Castaneda said in an interview. “The problem is that we have a lengthy and cumbersome process here in the United States through the FDA. The Chinese are not asking for anything that other countries are not able to sign on to, while in our country (FDA) … is holding the exportation of products by more than a year, if not more. In the FDA we have a very, very lengthy process in which a lot of lawyers get involved, which delays the whole process.” 

FDA spokeswoman Sylvia Ballinger said the agency is working with the Chinese government, but the requirement laid out by China’s Certification and Accreditation Administration (CNCA) are more than what the FDA is prepared to provide.

“FDA and CNCA are in the process of formalizing the procedure through which third-party certification would be acceptable to CNCA,” the spokeswoman said. “Once the procedure is formalized through a memorandum of understanding, FDA will alert industry and publish additional information on how the agency intends to implement this process.”

The FDA’s Center for Food Safety and Applied Nutrition set up a voluntary registry for milk exporters in 2014 to comply with Decree 145, but the process has been very slow and is stopping the U.S. from carving out a bigger market share in China, Castaneda said.

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The FDA is doing what it can, Ballinger said.

“The Agency is working swiftly to provide CNCA with the assurances they require to update the U.S. dairy list on a consistent and regular basis,” the FDA spokeswoman said. “FDA understands that U.S. exporters want to ensure continued and uninterrupted access to the Chinese market. FDA is working with dairy manufacturers to ensure their contact information and product listing is up to date by urging them to apply for the China dairy list via FDA’s Dairy Listing Module.”
 
Things might be different if handled by USDA, which has agencies like FAS dedicated to supporting exports, and the Agricultural Marketing Service, which helps companies comply with foreign restrictions, Castaneda said.

Some U.S. milk is getting through to China, but not much. The U.S. accounts for about 0.07 percent of all China’s milk imports, according to FAS data, with exports of fluid milk and cream last year worth just $1.8 million, a sharp drop from $5.6 million in 2014, before the new certification requirements. Castaneda said 2014 was also a “bubble” year in which China imported more than the country needed.

China has now moved beyond the bubble and imports are expected to increase for the foreseeable future. It’s not that the Chinese are consuming more milk – the market is relatively flat – but many small producers there have gone out of business because of low prices and imports are making up the difference, according to FAS.

“Low prices continue to depress Chinese production,” FAS said in the report. “Over half of China’s dairy farms operated at a loss in 2016.” Many small dairy farms closed that year and several large dairy operations culled their herds, the report said.

FAS is now predicting China will have about 7 million dairy cows in production next year, down from 8 million this year and 8.4 million in 2015. 

It’s a situation that the EU is eager to capitalize on, especially since Russia banned European imports.

Castaneda said U.S. producers also need to increase exports and he expressed frustration over the lack of new trade. He said he knows of at least one major deal involving a contract to supply Walmart in China that fell through because a U.S. exporter could not get certified in time by FDA.

“Their priority is not exports,” he said of FDA. “Why in the world is FDA so concerned about product that is going to leave the United States?”

(This story was updated on Dec. 2 to include comment from FDA.) 

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