Demand for imported dairy product slows in China, but Fonterra expects to sell more there anyway

Fonterra appears to be expecting to buck market trends and sell more dairy product into China.

It recently cited 'strong demand' from emerging markets like China for an up-tick in sales, one that is holding up prices in its online auction platform, globalDairytrade.

However, US officials have reportedly slashed expectations for purchases of whole milk powder by China, by far the biggest importer, warning that higher prices have made the product unaffordable for many buyers.

Online news service Agrimoney is reporting:

China will this year import 350,000 tonnes of whole milk powder, used largely in making chocolates, ice cream and yoghurt, nearly 50,000 tonnes fewer than previously expected, US Department of Agriculture officials in Beijing said.

For 2012, the import estimate was cut by 75,000 tonnes to 375,000 tonnes.

The figures, while still enough to leave China as by far the top buyer of the product, ahead of Algeria, follow trade data showing imports tailing off in the second half of 2011, coming in in October at half the levels of the same month last year.

What may be keeping imports higher than is justified by sinking local demand is the ongoing safety concerns around locally-supplied milk.

State media on Friday said that a Chinese dairy farmer had been sentenced to death for lacing a competitor's milk supply with melamine in revenge over business disputes. The contamination caused the deaths of three children, with 36 people hospitalised.

Earlier, Fonterra-linked Sanlu was embroiled in a major melamine-tainting scandal.

But local China demand is very price sensitive, and higher costs for imported product shifts demand for locally-produced supplies. Higher costs have "put imported whole milk powder out of the reach of many smaller domestic processors", the USDA officials said, putting the rise in the first 10 months of the year at 9%.