Contradiction Between Raw Milk Supply And Demand In China And Policy Recommendation

With the fast increase of dairy production in China, the contradiction between raw milk supply and demand is becoming more and more serious, which has influenced the development of dairy industry in China. Over supply of raw milk, dairy farmers will face the difficulty in selling. Short supply of raw milk, dairy companies will face the difficulty in buying. In this paper, the ratio of self-support model,econometric models,Grey System Model and Markov model are mainly used to study the contradiction between raw milk supply and demand.By using the ratio of self-support model, I analyzed the present situation of raw milk supply and demand in different provinces in China based on time series data and cross sectional data. The results indicated that the raw milk supply is sufficient and even in surplus from 1999 to 2006, also in 2008 during 14 years from 1995-2008. In the other years, the supply is insufficient all over the country. In 2007, the supply is insufficient in most provinces in China, especially in the southern provinces. However, in 2008, the raw milk supply is surplus in the northern provinces in China, there's still gap in southern provinces. By using cross sectional data of 28 provinces (municipalities, autonomous regions) from 2003 to 2008, two econometric models were established to estimate the factors influencing the raw milk supply and demand. The results shown that the major factors are feed prices, product costs and the profits in supply and processing capacity, sales revenue, and change of consumption in demand. Future raw milk supply and demand were predicted by using Grey System Model and Markov Model. The result indicated that the gap between raw milk supply and demand will be expanded year after year and the imbalance between raw milk supply and demand will become more and more serious.In order to relieve the contradiction between the supply and demand of raw milk, some policies recommendations have been given. They are: regulate and control raw milk production and dairy enterprises, establish a reasonable mechanism for raw milk price formation, and coordinate the relationship between farmers and dairy companies, etc.