- China's milk surplus drives tariff decision on EU dairy products
- Tariffs range from 21.9% to 42.7% on EU dairy imports
- China shifts to higher-margin dairy products like butter, cream
BEIJING/SHANGHAI, Dec 24 (Reuters) - China's farmers are up to their ears in milk and Beijing's decision to apply tariffs on dairy imports from the European Union is expected to give them a measure of protection as they branch out into higher-margin products like cream and butter.
"The country's milk oversupply plays a significant role in the government's decision to impose tariffs ... the whole Chinese dairy industry has been losing profits in the last four years, the industry has been bleeding," said Yifan Li, head of Dairy Asia at StoneX, a commodity-focused financial services firm.
He added that government subsidies in China decreased in 2025 as a sluggish economy weighed on state finances.
The higher duties on imports of unsweetened milk and cream and fresh and processed cheeses from the EU, which kicked off on Tuesday and range from 21.9% to 42.7%, were the latest move in a series of tit-for-tat measures since the bloc applied tariffs on Chinese electric vehicles.
China has recently significantly lowered provisional tariffs on pork from the EU following anti-dumping investigations on brandy and pork.
MILK INDUSTRY TRENDS PROMPT SHIFT
Milk output in China, the world's third-largest producer, surged to more than 40 million tons last year from 30.39 million tons in 2017. At the same time, consumption fell to 12.6 kg per person in 2024 from 14.4 kg in 2021, hurt by the nation's falling birthrate. Prices in recent years have sat at or below average production costs of around 3.02 yuan ($0.4298) per kg, causing many loss-making farms to shut down or sell cows for beef.
Lian Yabing, a dairy analyst at Beijing Orient Agribusiness Consultants, said over 90% of China's dairy farmers were not making a profit.
"The tariff decision is definitely an opportunity for top dairy producers like Yili and Mengniu, which are stepping up butter, cream and cheese production this year," Lian said.
China's milk glut and changing consumer dairy demands have pushed the country's suppliers to make higher-margin products over the past year, Li said, making it less reliant on imports.
"A few years ago, only a handful of top dairy producers were making cream and butter, now there are at least 40," he said.
Cream, which is easier to process than butter, has received a boost from the milk tea boom in China, with chains like Heytea and Chagee using the product in their ready-made drinks.
Han, an organic dairy farmer in southern Yunnan province, said he was part of a niche market of producers making small amounts of European-style cheeses like blue cheese and brie. He said demand has lately outstripped supply for traditional Western cheeses.
"For the few premium cheese producers in China, the impact is minimal because the production volume is too small," he said. "But this can be a signal that the government is formulating this tariff policy to protect its own domestic dairy industry."
A TARGETED TARIFF REGIME
Analysts say Beijing uses tariffs to register its displeasure with trading partners and their companies. Dutch dairy conglomerate FrieslandCampina faces the highest rate of 42.7%，while around 60 companies including Denmark's Arla Foods (ARLAF.UL) will pay just under 30%. The Netherlands and Denmark both voted in favour of increased tariffs on Chinese EVs along with major dairy producers France, Ireland and Italy.
The Netherlands also angered China in September after it seized chipmaker Nexperia from its Chinese parent company, Wingtech, citing governance issues, which triggered temporary global chip shortages in the automotive sector.
The dispute has not been resolved, with the Chinese parent and a Dutch unit engaged in a struggle for control over Nexperia.
Last week's reduced tariffs on EU pork imports were a win for Spain, which has adopted a pro-Beijing stance to court fresh investment, with state visits from Prime Minister Pedro Sanchez and King Felipe VI in the past year.
($1 = 7.0258 Chinese yuan renminbi)
Reporting by Daphne Zhang in Beijing and Casey Hall in Shanghai; additional reporting by Chenxi Yang and Laurie Chen; Editing by Thomas Derpinghaus
Source: Reuters