China Turns to Uruguay for Dairy
Beijing has picked up its efforts to find alternative sources of agricultural imports, including dairy, following joint criticism from New Zealand and the United States in June regarding China’s position on Taiwan. As a result, China has been actively seeking to secure alternative suppliers of major agricultural imports, including dairy products.
Even as China’s economy slows and agricultural inventories remain large, the most populous nation in the world has continued to search the world for more food supplies, according to Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aires.
“Enabled by geographic proximity and a 2008 free trade agreement, New Zealand has long been the primary supplier of dairy products—especially whole milk powder—to China,” Ganley said. “However, a shifting political climate could undermine this relationship.”
Uruguay, a small country on the east coast of South America, has risen to the top of China’s list of alternative suppliers of whole milk powder (WMP). Since 2010, Uruguay has regularly supplied small amounts of WMP to China, but volumes have grown substantially in recent years, Ganley noted. Last year, for instance, Uruguay sold 37,551 metric tons of WMP to China, more than twice the volume it shipped the prior year, cementing its position as China’s second largest supplier of WMP, she said.
“Uruguayan exporters have embraced this expanded relationship. They have prioritized sales to China and regularly host Chinese delegations. Their efforts appear to be paying off,” she said. “Uruguay has indicated that it is seeking a free trade agreement with China.”
Currently, Uruguay’s WMP exports to China are subject to a 10% tariff, and an agreement between the two countries would seek to eliminate this tax. According to Uruguayan officials, the country has successfully completed a feasibility study on a trade agreement and will soon commence formal negotiations with China.
“As part of Mercosur, however, Uruguay is theoretically precluded from negotiating bilateral trade agreements,” Ganley said. “And Uruguay’s decision to move forward has called into question the future of Mercosur and Uruguay’s role in the bloc.”
A successful trade agreement between the two countries would allow Uruguay to sell more dairy products to China, she said, but since Uruguay’s milk production is only about 10% of what New Zealand produces, China would still need to rely on other key suppliers for dairy products—at least for the near term.
