China’s economic strength has received a lot of coverage over the past few years. Just think about the problems with Quebec’s manufacturing industry and the omnipresence of “Made in China” products in our daily lives. Yet a little-known aspect is the significant growth experienced by China in terms of supply management in the Canadian dairy sector.

First, we need to understand that many people in China have become richer, thanks to an economic growth of 8% to 12% per year for more than 15 years. Consequently, when populations become more affluent, they usually switch from plant protein to animal protein. And China is no exception since the per person meat consumption has gone from 13 kg in 1980 to about 55 kg in 2007. Inversely, rice and grain consumption have dropped from 289 kg per person to 176 kg between 1990 and 2001. Dairy products, which are also a source of animal protein, have not, at least initially, profited from this increase.

This can be explained by the fact that milk and dairy products don’t play a significant role in the traditional Chinese diet. Another key factor is that in 1990, only 29% of Chinese homes had a refrigerator and that most households would shop for food on a daily basis and purchase their goods from public markets that had no way of keeping food cool and fresh. This was obviously not good for dairy consumption. However, things have changed a lot since then. In fact, wide-ranging food distribution is expanding significantly, especially with the Wal-Marts and Carrefours of this world. Retail food sales have increased by 435% between from 1991 and 2005, thus negatively affecting public markets.

The success of wide-ranging distribution must be considered in parallel to the rise in the number of homes that now have refrigerators, in 2005 that number was 90%, and the increasing number of people who own cars. For example, in 2004, there were 96,000 new vehicles hitting the roads of China every week. Furthermore, big box stores prefer to settle in a city’s outlying areas where space is cheaper and more readily available. Owning a car allows people to drive to these big box stores and bring home larger quantities of food and refrigerators keep all this food fresh. In this respect, such an environment is clearly more favourable to dairy product consumption.

In truth, dairy product consumption has grown by about 10% per year over the past few years to reach a little more than 22 kg per person, as compared to the world average of 100 kg. For the time being, China may drink its milk but still consumes very little cheese and other dairy products.

China’s dairy production sector did not remain at a standstill when faced with rising demand. From 2000 to 2004, the number of dairy cows doubled to reach 5 million heads. And during this same period, production multiplied threefold to reach 27 million tons. In spite of this increase in production and productivity gains, China’s production can’t keep up with consumption. The country will now have to depend on imports to meet a bigger and bigger part of their rising demand. This is in addition to the fact that dairy production is limited by lack of feed-growing areas, which are also in competition with grain production and urban development.

So what is the connection with supply management? Simple, China’s growing demand for dairy products has transformed this country into a significant importer of dairy products. Demand is currently impacting world prices by keeping them relatively high, while at the same time taking the pressure off our system. Let’s not forget that the larger the gap between our domestic price and the world price, the less protection is provided by our dairy tariffs. Consequently, we should all hope for lower world prices. Now imagine the impact on the world cheese industry when China finally discovers pizza!

Professor Doyon

Maurice Doyon is an Associate Professor and Graduate Program Chair, Department of Agricultural Economics and Consumer Science, Laval University. He is also a member of the Centre de Recherche en Économie agroalimentaire (CRÉA) with that same department, auxiliary professor with the University of Maine, associate researcher with the Centre interuniversitaire de recherche en analyse des organisations in Montréal and associate researcher with the Neutraceuticals and Functional Foods Institute (NIAF). Furthermore, he holds a doctorate degree in Applied Economics from Cornell University, as well as a Master’s degree from this same institution. Mr. Doyon has received over fifteen grants and merits throughout his distinguished academic career.