According to Yifan Li, head of Dairy Asia at StoneX, China’s dairy industry has been losing money for four consecutive years, with falling government subsidies in 2025 adding to the strain. The tariff decision is closely linked to the industry’s financial distress, as farmgate milk prices have hovered at or below average production costs of about $0.43 per kilogram, forcing farm closures and herd reductions.

China’s milk output has surged dramatically, rising to over 40 million tonnes in 2024 from 30.39 million tonnes in 2017, making it the world’s third-largest milk producer. At the same time, per-capita dairy consumption fell to 12.6 kilograms in 2024 from 14.4 kilograms in 2021, partly due to a declining birth rate. Analysts estimate that more than 90% of Chinese dairy farmers are currently unprofitable.

Industry experts say the tariffs could benefit leading domestic processors such as Yili and Mengniu, which are expanding production of butter, cream and cheese. The shift toward value-added dairy has accelerated over the past year, with the number of producers making cream and butter growing from just a handful to at least 40, reducing China’s reliance on imports.