Wednesday, 18 May 2022 12:55

China lockdowns hit dairy demand

Written by  Peter Burke
Covid restrictions in China could dampen milk powder imports into that country. Covid restrictions in China could dampen milk powder imports into that country.

Covid restrictions in China are likely to slightly dampen milk powder imports into that country, according to Stefan Vogel, Rabobank research general manager for Australia and New Zealand.

He says the spread of the Omicron variant and China's "dynamic zero-Covid" policy were also bringing strong headwinds to consumption in the country's food service sector and this was playing out in reduced dairy demand.

Vogel says current strict lockdowns in many major cities in China - as the country tries to eradicate the spread of Covid - are not only affecting its local citizens, but also having flow-on impacts on trading partners, including NZ. He says these include logistics, corn plantings and dairy demand.

"Dairy demand in food service is slowing in China while, according to our calculations, dairy products in China produced from imported Oceania whole milk powder (WMP) are now more expensive than those from locally-produced dairy for the first time in eight years," he says.

Vogel says the already-stressed global container logistics situation is becoming more complicated due to massive delays around the Shanghai Port. He says it looks likely that the massive ongoing Covid lockdowns in China will add to continued container logistics issues and keep container freight prices well above historic levels for 2022 and also likely to remain elevated well into 2023.

Meanwhile in NZ, Rabobank is expecting a wide range of milk price forecasts for the coming season. In a recent report the bank says global dairy commodity prices present a mixed bag as demand weakens. They says the 'fog of war' is clouding forecasts and there is more risk than usual at this time of the dairy cycle.

The report notes an overall drop in milk production of 2% against this time last season, but says the world-wide trend in milk production at present is 'underwhelming' and that this may benefit NZ in the short term.

The report also notes that global vegetable oil prices are rising due to the Ukraine war and various protectionist moves such as Indonesia's ban on palm oil exports.

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