Korea has resumed exporting sterilized milk to China after 14 months of suspension, as Maeil Dairy shipped 6 tons of milk to the nation’s largest trade partner on July 21.

The Korean dairy industry is pinning high hopes on the exports to help consume the nation’s record-high oversupply.

Milk exports were suspended in May last year after China adopted a new certification system for foreign dairy products, banning imports from foreign players without the fresh certification.

Yet experts remain pessimistic on whether the resumption of exports will be able to significantly drop Korea’s overproduced milk stocks.

Experts attribute the nation’s oversupply to the changing global consumer trend, domestic dairy producers’ cutthroat competition with European players and record-low global dairy prices.

The Korean Ministry of Agriculture, Food and Rural Affairs said in a statement that “dairy manufactures are expecting gradual recovery of milk-related exports to China this year, while the export of sterilized milk is unlikely to see a significant increase.”

The Korean dairy market has moved on from drinking cartons of sterilized milk to larger consumption of cheese, yogurt and other processed dairy products. In 2013, Korean exports of flavored milk, ice cream, coffee mix and baby formula saw a significant rise.

Dwindling demand for white milk has been a global trend following the sales drop suffered by global cereal makers. Despite falling demand, the production of milk has continued to increase.

According to the Korea Dairy Industries Association data, as of May, the stocks of milk powder reached 21,564 tons, up 37.2 percent from a year ago and 123.5 percent from two years ago.

The growth has soared. In the January-May period of this year, the stocks hit a record-high in the 20,000- to 23,000-ton range.

In a counter move, the government-subsidized Korea Dairy Committee, which accounts for 27 percent of the nation’s total raw milk output, increased the average daily production of raw milk in May by 5.7 percent from two years ago, while the actual consumption of milk decreased 7.4 percent during the same period. In the first half this year, KDC’s production of raw milk increased 3.1 to 8.3 percent from previous years, while the consumption posted 3.3 to 8.2 percent negative growth.

In addition to the oversupply of sterilized milk, experts expressed concerns over cutthroat competition with European companies in the Chinese market.

According to the Korean Agriculture Ministry, Korean milk has excellent quality control and superiority, yet faces a challenge in production cost, compared to European rivals.

“The production cost of sterilized milk in Korea stands at about 1,070 won ($0.92) per liter; the cost is almost half in the dairy-strong European exporters,” said Kim Jung-hee, an assistant director of the livestock management division of the ministry.

Moreover, the falling global milk price ― the lowest in six years ― and the sagging Chinese demand for milk also pose potential threats to the Korean exports of sterilized milk.

On July 1, the benchmark Global Dairy Trade price index fell 5.9 percent at auctions held by New Zealand dairy exporter Fonterra, posting its eighth consecutive decline. The average selling price fell to $2,276 per ton, the weakest since July 2009, and is unlikely to recover the $3,000 range of two years ago.

By Chung Joo-won (joowonc@heraldcorp.com)