Rabobank: Coronavirus in China negatively affects milk trade
Since the first case of the new coronavirus was identified, named according to the international classification COVID-10, confirmed cases of infection have reached a figure of almost 80 thousand More than 2.5 thousand people died. Today, the Central region of China is in isolation, with state-sanctioned quarantine and restrictions on movement to avoid the spread of the virus.
These circumstances affect all areas of the Chinese economy. Halted transport and labor shortages affect both production and trade. Sandy Chen, senior dairy market analyst at Rabobank RaboResearch analyzed the situation and urged not to ignore the consequences for the global dairy market.
"Although the impact of the epidemic on demand for dairy products should be short - term, uncertainty about the actual duration of the quarantine in the country and the lingering psychological impact can cause significant damage to consumption, which will affect processing, production and imports", said Sandy Chen.
The quarantine fell on Chinese New year. According to the analyst, premium liquid dairy products, which are traditionally bought for the holidays, have been seriously affected. Rabobank estimates that the 30-day impact of COVID-19 could reduce milk consumption in China by 2-4% in annual terms. Part of the retail loss is made up of online sales.
30 days of coronavirus quarantine can also reduce annual cheese consumption in China by 5%, believe Rabobank experts.
“Deliveries of raw milk and replenishment of stocks from dairies were delayed due to stricter traffic control and a shortage of labor. Small and medium-sized farms were affected the most and seriously reduced production", Chen said.
Initially, Rabobank experts predicted that in the first half of 2020, imports of dairy products to China will decrease by 3%, but will grow by 1% in annually terms. In the context of the COVID-19 situation, Rabobank forecasts 1% decrease in overall demand for dairy products, which will lead to 11% reduction in imports.
If overall demand falls by 5%, imports will fall by 25% in 2020.
“All this may encourage exporters to move some of the raw materials from production of cheese, butter and cream to skimmed milk powder and whole milk powder. This will lead to an increase in the volume of milk powder on the world market", concluded the analyst.
INTL FCStone estimates that prices for dairy products in China may fall by 3-10% in the next 12 months.
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