Of pigs and cows

Reading reports of the current tainted milk debacle, I can’t help but wonder what’s going to happen to the cows. In particular, I’m reminded of the pork situation over the last year or two – rising pork prices led to too many pigs being raised, which led to a collapse in prices, which led to a collapse in supply as farmers stopped raising pigs, which led to a much sharper rise in pork prices (pushed still higher by the fatal blue-ear disease in sows).

With farmers dumping their milk, unable to sell it to the Mengnius and Yilis, it’s not going to be long before farmers decide it’s not worth the money to keep dairy cows. Assuming that the Chinese dairy industry manages to get its act together and start producing melamine-free milk, there is a danger it could run into supply issues. Prices will rise as the remaining cows find their pastures curiously empty.

This could be an opportunity for the dairy industry to reinvent itself and adopt a more industrial approach to milk production. That has been happening slowly in pig farming, which, like dairy farming, still depends heavily on farmers with small herds for supply. Larger, centralized farms could give dairy companies more control over the supply chain and guard against supply shocks.

Of course, a sharp rise in the price of milk isn’t going to have as much of an impact on consumers as rising pork prices did. While dairy consumption has been increasing at an amazing rate, it’s hardly as central to Chinese diets as pork – and, by extension, won’t affect CPI inflation as much. The potential impact on whatever local dairy industry survives this mess (should it decide to pass price rises on to consumers) is harder to determine.