Milk prices, imports to rise as demand continues in China: S&P

HONG KONG -- Healthy demand for milk and other dairy products is pushing up the cost of raw milk in China. Ratings agency Standard and Poors says it believes downstream suppliers will increase imports of milk products, and acquisitions of upstream suppliers will remain a theme.

"The dairy producers we rate in Greater China will likely be able to maintain margins by increasing imports as domestic raw milk prices rise, improving product mix, and moderately increasing prices," said S&P Global Ratings credit analyst Flora Chang.

"We also expect beverage firms to recover from COVID disruptions and return to mid-single digit sales growth from 2021 onward."

S&P has revised its forecast for annual dairy price rises over 2021-2022 to 2-7% (versus 0-5% previously) because of higher consumer demand owing to rising health awareness in the post-pandemic era.

"By our estimates, the mainland dairy industry will grow sales at 4-7% annually over the next five years, primarily driven by rising dairy consumption as China gets wealthier," it says.

"Key risks for the sector are food safety, fierce competition, and expanding balance sheets stemming from higher capital investments. Acquisition risks persist as downstream producers continue to secure offshore dairy sources and diversify product portfolios."

www.steandardandpoors.com (ATI).