The "milk powder crisis" has occurred repeatedly in the United States since February 2022. By August 2022, the import volume of infant formula in the United States had soared 113.9% year on year, and the price of infant formula on websites such as Amazon, eBay and Facebook had soared more than 300%. Three main reasons are listed for this situation: 

Firstly, the production of skim milk powder (SMP) decreased by 24.5% year on year, making the production of infant formula milk powder with skim milk powder as the main raw material decreased, and the self-sufficiency was insufficient, largely relying on imports.

Secondly, due to the impact of COVID-19, the domestic supply chain of infant formula milk powder is not smooth, and there are widespread problems such as difficulties in purchasing key ingredients, labor shortage and disruption of product packaging. At the same time, the pandemic is changing people's consumption habits, making them more likely to stock up before they consume. At the beginning of the epidemic, people piled up milk powder in big quantity and manufacturers increased production, but as production expanded and the market became saturated, manufacturers scaled back production. Considering milk supply’s cyclicity, the cycle from replenishment to lactation of cows is more than 2 years. The lagging milk supply cannot adapt to the fluctuating demand for milk powder, resulting in the shortage of milk powder at the present stage.

Thirdly, Abbott Laboratories, the largest milk powder manufacturer in the United States, shut down its factories due to safety problems, aggravating the shortage of milk powder supply, which also became the trigger for the outbreak of "milk powder crisis" in the United States. According to the Wall Street Journal, those most affected by the "milk powder crisis" are mainly grassroots people with an annual income of less than $75,000, of which 40 percent of families have difficulty buying milk powder.

In order to deal with the "milk powder crisis", the United States has taken the following two measures. Firstly, under the supervision of the US Food and Drug Administration (FDA), Abbott restarted the plant in question. Secondly, the FDA has simplified the inspection procedures for imported milk powder, enlarged access, and imported a large number of overseas milk powder. However, it is reported that there are still risks of deterioration of Abbott milk powder. Abbott announced a recall of some defective products on October 14 local time, indicating that the "milk powder crisis" in the United States still exists.

Falling cow stocks and rising costs have driven up U.S. milk prices

According to the U.S. Live Cattle Inventory Annual Report and the latest data from the CLAL, as of Jan. 1, 2022, the U.S. live cattle inventory fell to a nearly five-year low, with 9.38 million dairy cows, down 0.7% from the previous year. In the year to August 2022, milk production in the US was down 0.3% year on year, while milk prices were up 62.2% year on year. The decrease of milk production and the increase of milk price are mainly affected by the price of feed. In the US, where dairy farming is based on fattening and concentrates feed with corn and soybean meal as main raw materials, the price of corn and soybean is forecast to rise 38.3% and 27.1% year on year respectively by October 2022. Rising feed prices and shifting costs to consumers have pushed up milk prices. At the same time, rising costs have curtailed farmers' incentives to expand production, leading to a decline in cow stocks. In addition, according to previous statistics, California has 1.672 million dairy cows, which is the largest dairy herd among all states. At present, over 97% of California is in severe drought. The continuous severe drought reduces the quality of pasture and further affects the milk production.

Dairy production, especially skim milk powder, fell sharply

As of August 2022, in the major dairy products, except cheese production increased by 1.9% year on year, the output of butter and all kinds of milk powder decreased and the import volume increased. The output of butter fell 2.2 percent year on year, and the import volume rose 11.9 percent year on year. However, according to CLAL data, it is expected that US butter exports will increase 48.7% year on year in 2022, and that the annual average butter self-sufficiency rate will be more than 110% between 2018 and 2021.

By August 2022, the production of skim milk powder (SMP) decreased by 24.5% year on year, and the import volume increased by 53.1% year on year. Skim milk powder (NDM) production fell 3.1 per cent year-on-year. The production of milk powder is reduced or affected by energy prices. The processing of whole or skim milk powder requires high temperature environment and high energy consumption. Due to the impact of inflation and the Russia-Ukraine conflict, world energy prices rose in 2022, and dairy producers shall reduce milk powder production due to the rising cost pressure. According to the report, some dairy processors have shifted to making cheese with lower energy consumption, resulting in a 1.9 percent year-on-year increase in cheese production, a 13.4 percent increase in exports and a decrease in milk powder production.

By August 2022, except for major dairy products, the import and export volume of other dairy products had basically increased, indicating a positive trend in international trade. The import volume of condensed milk increased by 79.4% and the export volume increased by 42.8%. The import volume and export volume of casein increased by 25.7% and 31.9% respectively. Cream imports were up 36 per cent year on year, while exports were up 14.8 per cent.

Generally, the import growth rate of US dairy products basically exceeded the export growth rate from January to August in 2022. The endogenous demand of the US market is large, and the development prospect of the dairy industry is promising. At present, the United States urgently needs to solve the following problems: under the epidemic, the dairy supply chain is not smooth, many types of dairy products are in short supply and the price is too high, and the consumer satisfaction is low.