China Probes EU Dairy Imports in Escalating Trade Dispute
Bloomberg recently asked Yifan Li, Head of Dairy Asia at StoneX Group Inc., for his views on causes of the escalating trade dispute between China and the European Union. Recently, China launched an anti-subsidy probe of dairy imports from the EU. Cutting EU shipments would act to alleviate pressure on Chinese farmers who have dealt with weakening domestic conditions for some time.
“The simplest way to put it is that China over-invested in production and then consumers down-shifted on demand,” said Li.
China’s dairy sector took a severe hit in 2008, when contamination by melamine was responsible for several deaths and sickened thousands of people across the country, causing lasting damage to the industry’s reputation.
China’s farm ministry numbers show that its own milk industry is suffering, with milk prices falling for the past two years, and as much as 80% of farmers now losing money. Cutting imports from the EU may sound like a reasonable move, given the EU is China’s second-largest source of foreign dairy products. New Zealand is the largest.
China’s plan remains increasing domestic output while cutting imports in an attempt to direct more of the consumption towards Chinese farmers. Excess production has increased by 40% in the past decade while demand has declined alongside the shrinking economy and lower consumption.
Unlike in the U.S., dairy doesn’t play a key role in the Chinese diet. Nevertheless, the opportunity for market growth in a country with a population of over a billion people has many producers, both inside and outside the country, looking to capitalize.
Li said that Beijing’s latest move has spread concern that it may signal China’s willingness to take more punitive measures, which could have greater trade implications than intended.
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