Milk powder under pressure in China

kowtow

Interesting - Chinese Government investigation(s) into Fronterra & the pricing of baby formula feed.

http://online.wsj.com/article/SB10001424127887324260204578585453690850158.html

The investigation has prompted other suppliers including Danone & Nestle, to reduce formula prices in China - by 11% in case of Nestle.

delaval

I am wondering is this more to do with China trying to get her people to use domestic powder than there being a problem with imported powder.

I noticed that in the wealthier cities imported is retailing at a significant premium.

What's your take on it and its implications for milk price?

kowtow

delaval wrote: »

I am wondering is this more to do with China trying to get her people to use domestic powder than there being a problem with imported powder.

I noticed that in the wealthier cities imported is retailing at a significant premium.

What's your take on it and its implications for milk price?

My immediate thought is that if Nestle can make an instant 11% cut on the finished product at a time when the principal input is trading near highs ... there is a lot of fat in this game (and not just in the milk..)

I don't think there is a problem with the powder either - more likely as you say that China wants to foster their domestic industry in balance with imports.

milkprofit

Not only is there fat in the game but a large amount off Cream
Look at the history of joint ventures with chinese companies They always win !
China will cut their spend on foreign products

kowtow

milkprofit wrote: »

Not only is there fat in the game but a large amount off Cream
Look at the history of joint ventures with chinese companies They always win !
China will cut their spend on foreign products

China is also far from immune from the deleveraging & deflation which have plagued the West during the past few years.

They have a nascent property crisis with the potential to dwarf the US housing crash of 2006-2009 - Bloomberg is estimating a Chinese money market squeeze of 750 billion yuan this year.

jaymla627

milkprofit wrote: »

Not only is there fat in the game but a large amount off Cream
Look at the history of joint ventures with chinese companies They always win !
China will cut their spend on foreign products

Can pretty much guarantee it wont be on food imports, china in its massive drive to industrialize its cities and develop it economy has destroyed millions of acres of agricultural land along with diverting massive amounts of water from agricultural to feed these cities and drive its steel plants etc.... massive water shortages in china at the min and with global warming mixed into the equation there reliance on food imports is only going one way an that's up, the only thing that would be worrying is the amount of land there buying up worldwide its pretty immense.
They recently tried to buy the biggest privately owned dairy farm in new Zealand that was milking 20,000 cows in the north island which was owned by the carter family that went bankrupt but the new Zealand government blocked it.

Timmaay

China has a massive uphill battle to regain confidence in the domestic milk powder market, after the protein scare in 08, Chinese people living abroad still supposedly post home massive amounts of foreign baby infant formula. Nestle etc are all happyly creaming Chinese people as a result. Going back to the question of how will it effect farm gate prices, I don't know, the milk demand won't reduce even if the Chinese government forces a price drop. I think short and medium term the farm gate milk price is effected more so on the supply side, which is all weather and cost of grain related.

mf240

Lads when quotas go milk will be 1 cent above the point at which it wont be supplied. Anyone that thinks otherwise is fooling themselves.

We as farmers will never be allowed to benifit from the high margin business like powders and such. We are just supplying the raw materials and will never be regarded as anymore than that.

kowtow

jaymla627 wrote: »

They recently tried to buy the biggest privately owned dairy farm in new Zealand that was milking 20,000 cows in the north island which was owned by the carter family that went bankrupt but the new Zealand government blocked it.

Also some interesting moves by China in the Indian Ocean & African territories.


The near term issue though will be imported baby powder, which (if I understand it correctly) sells at a premium price in China to new middle class consumers. With deleveraging and a correction in asset prices in middle class China that is the market which will come under most pressure in the short term.

It is, after all, a discretionary option for consumers, and they are paying relatively more to exercise it than their counterpart in the West would.

milkprofit

milkprofit wrote: »

Not only is there fat in the game but a large amount off Cream
Look at the history of joint ventures with chinese companies They always win !
China will cut their spend on foreign products

Cut the spend not the Quantity

delaval

mf240 wrote: »

Lads when quotas go milk will be 1 cent above the point at which it wont be supplied. Anyone that thinks otherwise is fooling themselves.

We as farmers will never be allowed to benifit from the high margin business like powders and such. We are just supplying the raw materials and will never be regarded as anymore than that.

Is it any different at the moment with quotas in place??
Quotas offered no protection in 2009!!!

Remove quotas tomorrow morning Nd let there be no interference from beurocrats and politicians seeking election by jumping on every passing band wagon!!

kowtow

delaval wrote: »

Remove quotas tomorrow morning Nd let there be no interference from beurocrats and politicians seeking election by jumping on every passing band wagon!!

Absolutely.

Quotas, SFP, subsidies... not one mechanism of this type through history has been deployed without unintended consequences, the ill-effects of which inevitably fall upon the wider body of farmers.

There is something in the suggestion that

milk will be 1 cent above the point at which it won't be supplied

In that always, by definition, input prices will rise and output prices will fall far enough to squeeze inefficient or idiotic dairy farmers out of business.

After all, if any idiot could produce milk, idiots everywhere would bid up the price of land until it was unprofitable to do so.... ah hold on, wait a minute...