Xinhua Insight: High stakes in China's dairy sector restructure   2012-06-30 14:15:49            

by Henry Acland, Guo Xinfeng

BEIJING, June 30 (Xinhua) -- China is restructuring its dairy sector amid incessant tainted-milk scandals, but significantly more milk production likely puts colossal strains on the country's resources.

To meet a growing appetite for quality dairy products, the country's fast growing but fragmented sector faces many challenges, such as a shortage of high-caliber dairy workers, dairy companies and insiders said.

Although China is the third largest milk producer in the world, two-thirds of its dairy products come from aboard. The country aims to expand its raw milk production to 50 billion liters by 2015 from 36.56 billion liters in 2011.

With the country's per capita milk consumption a fourth of the global average, dairy demand is expected to grow as residential incomes rise.

But dairy production efficiency in China is much lower than that of many other countries, it may take 20 to 30 years for the industry to reach maturity, Nan Qingxian, executive director of the China Dairy Industry Association (CDIA), said.


Despite quality issues, the big producers are gambling that better-off Chinese will increasingly recognize benefits of dairy nutrition.

"Dairy demand in China is expected to double in the next eight years, meaning the country will be consuming more than 70 billion liters of milk by 2020," Kate Hao, a Fonterra communications manager, said.

Both overseas and domestic dairy firms are increasing their presence in the country.

China's dairy giant Mengniu Dairy Company announced recently it would spend 3.5 billion yuan (556 million U.S. dollars) to expand its farming operations, after inking a deal with Arla Foods that gave the Danish-Swedish dairy group a 5.9-percent stake in the enterprise.

The move, aimed at ensuring all milk of the Inner Mongolia-based company is self-supplied by 2015, came after its products were found tainted with carcinogen aflatoxin late last year.

Fonterra announced in April that it would invest 557 million yuan in two more feedlots in China, which will take its number of farms to five with around 15,000 cows.

In Guangdong, where dairy output can only meet one-third of local demand, enterprises are setting up farms in surrounding regions to capitalize on the southern province's hunger from dairy products.

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Editor: Luan
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