Chinese growth in various industries in the last three decades has been well evidenced, talked and researched about. Let’s look into the future for China and see where the next boom will come from and how various market participants can capture this growth opportunity.

I believe we should look to China’s milk sector. This sector has seen quite rapid growth over the last few years, and it can easily outperform most other agriculture sectors in China from a return-on-investment standpoint.

To provide some context, a high milk consuming country in Europe would have per capita milk consumption of about 150 kg/person/year.

Why China?

The current Chinese consumption is less than one-third of this. In addition, in advanced nations milk (and milk products) provides some 9 per cent of dietary supplement, 19 per cent of protein, and 12 per cent of fat to a person. China currently lags behind in all of these numbers, sourced from UN’s Food and Agriculture Organisation.

Most importantly, I would argue that given the size of its population, changing dietary habits (which are incentivising milk consumption), higher income levels, and a greater need for total calorific value, we should expect the demand for milk to be substantially higher in China in a decade’s time than it is today.

What does this mean for the world?

First, there are only a few nations – such as New Zealand, the US and Australia – that have the capacity to export very large quantities of milk.

Second, assuming that production can keep up with the increasing demand for milk, there will still be a need for higher yielding cows and more feed to support their milk production.

Third, feed can be pasture or corn, both of which are available in abundance only in a few countries, such as Argentina, the US and Australia.

Fourth, milk is a perishable product, so if we are talking about imports into China, most of it will have to be evaporated milk in containers.

These factors will lead to an increase in milk prices, very likely resulting in a struggle for fulfilling demand in other countries such as Venezuela, Algeria, etc.

Infra investments

What does this mean for investments?

The first phase of investments will be in producing milk elsewhere, such as in California or Kansas in the US, and exporting it to China.

Exporting the technology to produce milk in China itself would be the next step, so that production and consumption centres are closer to one another.

While China can make capital investments in milk production, it should also make a conscious effort to invest in pastureland or production of corn for feeding the bovines.

China currently doesn’t enjoy either of these agricultural capabilities because it runs a tight ship on land usage given the water constraints, and there is a vibrant feed demand for corn towards meat production.

The opportunity not only lies in making the right investments in milk production but also in investing in technologies of feed production to achieve higher milk yielding cows.

Given the current scenario, I think the most prudent way to capture this expected growth trajectory would be for Chinese firms to make investments in milk producing nations.

This will help them achieve the appropriate milk balance and also allow them to assimilate milk production technology into their own production process.

The natural choices for these investments in my view are the US for production and India for learning the successful tactics required in feeding milk to a billion plus population.

It is clear China will be demanding more milk for domestic consumption, and to optimise its return on investment, it is time to capitalise on some of the lessons we have learned from the infrastructure boom in China and apply them to the milk sector.

(The writer is based in London and is the founder and Managing Director of OpalCrest (www.opalcrest.com). Prior to founding OpalCrest, he was a commodities trader in London and New York.)

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