Falling prices force farmers to dump milk

An increasing number of cow keepers in China are deciding to discard the milk they collect and close business, as raw milk procurement price keeps diving amid rising cost and competition from import.

The fresh milk that dairy firms decline to buy is either thrown away or used to feed calves and pigs, said a farmer in Weifang city, Shandong province, to the Securities Daily on Tuesday.

Dairy farmers in Hebei province face a similar decline in demand, where a farmer named Li Juan dumps more than 50 kilogram of fresh milk every day, according to the Beijing News.

Raw milk procurement price has continuously declined for 10 months since February last year, from about 5 yuan ($0.8) to 3.5 yuan per kilogram. According to the News, the price in some breeding region fell to less than 3.3 yuan per kilogram at the end of last year.

Cow price declined consequently, as price for a five-month pregnant cow dropped from 18,000 to 12,000 yuan in 2014. Li Juan earlier sold her five cows at an average price of 9,000 yuan each, according to the News.

The low valuation of Mengniu and Yili, two dairy giants in China, has reflected shocks brought by imports and worries over increasing competition, said Luo Lijun, a consumer-goods analyst with Essence Securities International, in a note on Dec 29.

He expects the dairy firms to continue to benefit from cheaper raw materials in the first half year of 2015 and see an improved profit margin.

"We still expect sales volume growth to stay weak in 2015," said Sunny Kwok, an industry analyst with Guotai Junan International, adding that the fall of fresh milk could be lower than expected as the firms "don't hope to see many dairy farmers leaving the industry."