Chinese dairy farmers struggling

In the rural areas of north China's Hebei Province, local farmers have started feeding pigs something unusual: fresh cow's milk.

The farmers are not trying to make the pigs healthier. Their new diet is a result of a severe dairy industry slump across north China, where plummeting milk prices have fueled a rush among local farmers to sell milk at extremely low prices, however possible, including selling to local pig farmers.

To recover their costs, some dairy farmers are feeding the milk to calves, or simply throwing out the nutritious liquid. Some have even killed their cows to prevent further losses.

The downturn has come as a surprise to many. In late 2013, China's dairy products saw a price hike following a production decrease caused by disease and individual farmers leaving the industry. Milk prices jumped to more than 5 yuan (0.8 U.S. dollars) per kilogram in December 2013 from 3.4 yuan per kg a year earlier.

The dairy boom sent ripples of excitement through the sector, with farmers purchasing large numbers of dairy cows at high prices to boost production.

But the boom proved to be a flash in the pan. In March 2014, foreign milk prices began to fall drastically due to overproduction. Many dairy companies resorted to cheap overseas sources and limited purchases from domestic suppliers, causing dairy prices to dip to new lows.

According to official statistics, milk prices fell for ten consecutive months starting in February 2014. In the first three quarters of last year, milk prices dived to 3.84 yuan per kg from 4.26 yuan per kg, and the trend showed no signs of stopping in the last three months of 2014, according to the Ministry of Agriculture.

"Currently around one tonne of milk is left over each day, because buyers have compressed their purchase volumes," said Shi Zhenhui, head of Jinhe Cow Raising Farm Co. Ltd. in Hebei's Zhengding County.

Shi said his company has roughly 1,200 cows. Other companies have shut down, and his is also struggling.

A similar situation can be found in north China's Inner Mongolia Autonomous Region, which boasts large areas of grassland and a big dairy industry.

"If we cannot make it through the winter, our farm probably will have to be closed too," a local farmer surnamed Xu told Xinhua.

It is not the first time that the dairy sector has suffered. China's dairy industry has seen rough times, particularly since 2008, when the industry and consumer confidence suffered a heavy blow following a scandal over melamine-tainted baby formula. The scandal caused milk prices to tumble and led many farmers to discard their milk.

In 2013, the Tai'an Company under Mengniu Diary Group, one of the country's major dairy producers, purchased fresh milk at low prices in the eastern province of Shandong, resulting in the killing of cows there due to unprofitability.

Yuan Yunsheng, secretary-general of the Hebei Diary Association, said China should set up pricing mechanisms in different localities to maintain stable dairy prices.

Zhang Yuan, deputy director-general with the Dairy Association of China, said that both companies and individual farmers should strive to improve milk quality if they want to survive cutthroat competition.

One important aspect is improving fodder quality, Zhang said, adding that supervision should also be ramped up.

"Only in this way can we prevent situations like dumping milk and create a prosperous dairy industry," he added.