China Focus: Chinese dairy farmers resort to dumping milk, killing cows

With nowhere to sell their product, some Chinese dairy farmers have resorted to throwing out milk and killing their cows.

"A tonne of milk has to be discarded each day," dairy farmer Pei Shuke in east China's Shandong Province said. "This desperate thing rarely happened before."

Slumping global milk prices since the second half of 2014 have pushed many dairy farmers to desperation, and a long-term price mechanism is urgently needed to rescue farmers from their plight.

MILK SPILLED, COWS KILLED

"Unsold milk is discarded or donated to local nursing homes," said another anxious farmer, Cheng Meiyu.

Pei said throwing out milk is just one of their disposal methods. Some farmers have had to sell milk at the low price of about 160 cents a kilogram, and others have started to kill their cows.

China's Ministry of Agriculture (MOA) has warned such drastic measures are increasingly frequent as dairy processing companies cut or suspend the purchase of fresh milk.

So far, similar cases have spread to many major milk-producing areas in China, including Hebei, Inner Mongolia, Heilongjiang and Guangdong.

Wang Dingmian, former managing director of China's Dairy Association, said discarding milk and killing cows first started in 2009, and over 100,000 farmers have quit the industry each year.

"But the situation became severe last year, and such incidents have even occurred in Guangzhou, one of the cities that lacks milk the most," Ding said.

CHEAPER GLOBAL MILK, WEAKER DOMESTIC ADVANTAGE

Analysts pointed out that dropping global milk prices, overcapacity in the domestic dairy industry, and breached contracts have directly caused difficulty in selling milk.

Surging milk output in the United States and Australia have triggered price declines since last spring. Purchasing data showed the price of fresh milk has dived 40 percent in major milk-producing regions worldwide such as New Zealand and the EU since March 2014.

The MOA said private dairy farmers have become less competitive in the face of cheaper milk prices.

The cost, insurance and freight of imported milk powder has dropped to 2,400 U.S. dollars per tonne from 5,000 U.S. dollars per tonne in early 2014.

And domestic dairy companies spend up to 10,000 yuan (1,630 U.S. dollars) per tonne less to import foreign milk than to purchase fresh milk from local dairy farmers.

"Dairy companies' withering domestic milk needs and the high cost of raising cows have made dumping milk and killing cows reasonable," said Mao Changqing, chief strategist of Citic Securities.

Li Guoxiang, agricultural expert with the Chinese Academy of Social Sciences, said domestic dairy overcapacity has made the crisis even more severe.

Fresh milk output climbed 5.2 percent year on year in 2014 as many dairy farmers made blind investments in the industry, he said.

POTENTIAL MILK SHORTAGE

The MOA has issued an urgent notice that the "nowhere to sell" situation has caused huge losses in China's dairy sector and impaired the industry's future.

Given the sanctions on Russian imports and increasing EU milk production, Wang estimated the crisis will spread to more places before August this year.

"The farmers' actions may cause a milk shortage like the one that occurred two years ago," Li said, "The dairy production cycle is about two years, during which milk prices are likely to surge."

Analysts believe the key to solving the problem is establishing a long-term mechanism to stabilize milk prices.

"China should form a profit mechanism between dairy farmers and companies to ease the impact of imports, a reserve mechanism for temporary price fluctuations, as well as funding supports for dairy farmers," said Mao.

Wang suggested tax cuts for dairy companies to encourage milk purchases from local dairy farmers, while the government should urge companies to execute purchase contracts.

"'Milk dumping and cow killing' should be reined in through monitoring and early warning," Li said, "or milk prices will change radically." Endi