China's actions against EU subsidy-backed dairy products to help domestic sector

China's move to impose provisional countervailing measures on certain dairy products, including cream and cheese, from the European Union will help ease pressure on the domestic deep-processing sector, while creating a valuable window of opportunity for its firms, said market watchers and industry leaders.

The government initiated a countervailing investigation into certain dairy products originating in the EU in August last year. Preliminary determination indicated that EU-origin products received subsidies and caused material injury to China's domestic dairy industry.

The measures came into force on Tuesday and will take the form of temporary countervailing duty deposits, according to the Ministry of Commerce.

Liu Changquan, a researcher at the rural development institute of the Chinese Academy of Social Sciences in Beijing, said China's dairy sector is facing a difficult period, and much of the pressure is closely linked to rising imports.

"EU products, supported by subsidies, have entered the Chinese market with a clear price advantage, placing significant strain on domestic producers," said Liu, adding that as Chinese consumers move up the value chain and demand for more processed dairy products grows, domestic firms — lacking both scale and cost advantages — find it hard to compete with international suppliers at the early stage of development.

He said the current difficulties are the result of multiple overlapping factors, including the impact of rising imports.

Liu said: The EU has relied mainly on subsidies to give its value-added dairy products a price advantage, directly squeezing China's deep-processing segment, which is still in a growth phase."

Echoing that view, Liu Meiju, executive director of the Beijing-based China Dairy Industry Association, said the preliminary determination and the provisional measures are consistent with the World Trade Organization rules and with China's domestic law, and are expected to help defend unfair trade practices and mitigate the impact of subsidized imports on domestic producers.

The measure should also help create a more fair, transparent and predictable market environment for Chinese dairy companies, providing an important boost to industry confidence and supporting higher-quality development, said Liu Meiju.

Chen Bing, director of international cooperation unit at the Beijing-based Dairy Association of China, said that if domestic processors can take advantage of the current policy window to broaden their product portfolios, move further up the value chain and improve overall efficiency, they will have an opportunity to significantly reduce production costs.

"On that basis, even when faced with renewed competition from imports in the future, companies would be better placed to cope," said Chen, noting that some companies upgrading their deep-processing capabilities have managed to absorb rising raw-milk costs and stay competitive.