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Published on : Jul 21, 2015

China’s slowdown has severely affected the global milk industry over the last year. While global milk prices slashed down to half their recent stable prices in 2014, they dropped a further 11% in the global dairy trade auction that was held on July 15. Global milk prices are now at their lowest since the year 2002.

In resulting circumstances, Fonterra – the New Zealand-based and world’s largest exporter of dairy products has announced its decision of cutting off 500 jobs from its 16,000 global workforce. Fonterra has also warned about possibility of more such layoffs in the future years as the company is reviewing its operations in these troubled times.

China has traditionally been a major importer of dairy products from New Zealand, and the market has seen major expansions in the recent years. However, this market has shown absolutely grim demand, especially since the start of this year. Compared with 2014, the market has seen a 69% plunge since the start of the year.

It is being said that China has stockpiles of huge amount of milk powder, a reason why the demand from its end is so grim since the start of this year. Experts say that the stores of milk powder in China’s warehouses are anywhere between 150,000 and 300,000 tons. The latter figure is a rough estimate of half the volume of all the milk products that were exported by New Zealand in 2014.

But reduced growth for milk and milk products from China and Middle East is not the only factor leading to a reduced global demand. The ban imposed by Russia last August on foreign dairy products in response to Western sanctions enforced on the country owing to its role in the Ukrainian conflict has also taken away a major buyer of butter and other bakery products from the global milk and milk products market.

Meanwhile, supply has seen a high rise in the global market as farmers in the U.S., Europe, and New Zealand have established dairy farms with hopes of cashing in on the rising wave of doubling dairy products’ prices between the years 2009 and 2013. What complimented a constant rise in dairy farms during time period across the globe were the low prices of cattle feed.