China's milk powder stockpile is so large it may not return in a major way to the international market until after the second quarter of 2016.
That was the sobering forecast in a Dairy Consultants report out of China this month which noted the national powder stock was still around 400,000 tons and the domestic and import markets were in difficulties.
The report underlines last week's decision by Fonterra to slash its forecast dairy payout for 2015/16 to $3.85 per kg/ms.
It's worth also noting here that New Zealand's dairy industry has been the big winner as a result of the growth in demand for protein from China's rapidly growing urban middle class. In 2013, China's dairy imports increased by 50 per cent with New Zealand supplying over 70 per cent of China's total dairy imports.
If the Beijing-based consultancy is correct in saying that China's Government has required Chinese processing companies to use more milk and reduce the use of powder, then New Zealand's Fonterra with its major international commodity play has problems.
The report suggests China is skewing the market in favour of its domestic companies. There may be sound reasons for Beijing to do this. But the tariff phase-outs in the China free-trade agreement were also an incentive for NZ to produce commodities for that market. If the game has changed, then the local industry needs to be told.
This last point raises questions of China's intentions in the longer term.
Much of the stockpiled powder - which is close to expiry date - was being used for ice cream, pastry and confectionary, according to the consultants. They point to two factors at play - the rising supply and flat demand; the domestic supply was growing as dairy cattle introduced into the market in 2013 and 2014 started to produce milk this year and farms notched up production increases on the back of better feed.
What's also interesting is the big changes that have occurred in the infant formula market.
France's Danone has transferred its shares in Dumex Chian (Dumex used to be the second-largest infant formula brand in China) to Yashili. Its market share was reported as being 11.7 per cent in 2012, but plummeted to 2.9 per cent in 2014 after Fonterra's false Clostridium botulinum contamination incident. Fonterra supplied the base ingredient for the formula to Danone. That issue is still playing out in the courts.
But Chinese Customs data quoted in the same report also raise questions on the overall infant formula play as far as New Zealand is concerned.
While China imported 74,996 tons of infant formula in the six months to June 30, 25,324 tons were from the Netherlands (33.8 per cent). New Zealand-sourced formula accounted for 7227 tons in the six month period. On a year-on-year basis, the Netherlands has seen a 33.8 per cent increase in its baby formula exports to China. The NZ increase is 9.6 per cent. It's worth noting that back in 2008 - the same year New Zealand inked its free trade deal with China - this country shipped 10,212 tons of infant formula to China; the Netherlands shipped 2318 tons.
Clearly, the Netherlands has forged well ahead of NZ in less than a decade despite our FTA, which has wiped the tariff off formula to zero.
What the data doesn't show is that Fonterra has shipped plenty of ingredients offshore for other companies to use as the basis for their own infant formula brands. But it does show the trend.
My own perspective is that the substantial changes that have happened within this prime export market are a matter for serious ministerial attention by the NZ Government at the highest levels in Beijing.
They ought also to spark serious soul-searching in the NZ dairy industry and a renewed vigilance on risk factors .
It's just too important not to get it right.