China’s farmers are drowning in milk, so Beijing’s decision to impose tariffs on EU dairy imports should help them move upmarket to cream and butter.

“The country’s milk oversupply plays a significant role in the government’s decision to impose tariffs and the Chinese dairy industry has been bleeding profits for four years,” said Yifan Li, head of Dairy Asia at commodity-focused financial services firm StoneX.

The EU’s higher charges on unsweetened milk and cream and fresh and processed cheeses, which began on Tuesday and range from 21.9% to 42.7%, were the latest tit-for-tat step since the bloc imposed tariffs on Chinese electric vehicles.

China recently drastically decreased EU pork provisional tariffs after brandy and pork anti-dumping investigations.
China, the world’s third-largest milk producer, produced almost 40 million tons last year, up from 30.39 million tons in 2017. The nation’s declining birthrate reduced consumption to 12.6 kg per person in 2024 from 14.4 kg in 2021.

Many loss-making farms have closed or sold cows for meat due to poor prices of 3.02 yuan ($0.4298) per kg.

Beijing Orient Agribusiness Consultants dairy analyst Lian Yabing stated 90% of Chinese dairy producers lost money.
“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,” he said.
Li said China’s milk surplus and shifting consumer dairy preferences have driven suppliers to make higher-margin products during the past year, reducing imports.

“A few years ago, only a handful of top dairy producers were making cream and butter, now there are at least 40,” stated.
The milk tea boom in China has boosted cream, which is easier to process than butter, in ready-made drinks from Heytea and Chagee (CHA.O)