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Ups and Downs in Chinese Dairy Market - Dairy products refer to the products made and processed with fresh cow (sheep) milk as the raw material, including liquid milk, milk powder, cheese, etc. With the development of Chinese economy and the improvement of people's living standard, more Chinese people consume dairy products as a nutrient in daily lives. China's dairy industry has entered a phase of rapid growth since 1998, and the annual growth rate had maintained over 10% before 2008.

However, the outbreak of the Melamine Incident in 2008 brought a serious blow to China's dairy industry, especially from September to November in 2008. Many dairy enterprises in China nearly stopped their production, and only the total output of China's dairy products benefited from the development in 2008 H1, which was just at par with that in 2007. In 2009, the Chinese government took a series of measures to save the dairy industry, making the dairy industry recover gradually in 2009-2010. In 2009, China's dairy output reached 19.35 million tons, increasing by 12.88% over 2008. In 2010, China's dairy output exceeded 20 million tons.

The major products in China's dairy market are liquid milk (pasteurized milk, sterilized milk and yogurt) and milk powder. The market scales of other dairy products in China such as cheese and cream are all very small.

Sterilized milk is also known as high-temperature milk or room-temperature milk, and can be preserved at room temperature. The market is mainly led by national enterprises such as Yili and Mengniu. Pasteurized milk is also known as low-temperature milk, and it needs to be refrigerated in the marketing and preservation process. Therefore, the market is mainly led by local brands such as Bright and Sanyuan.

In China, yogurt can be roughly divided into 3 categories: the first category is natural yogurt; the second category is modulated yogurt, such as fruit particle yogurt and cereal yogurt; the third category is health yogurt such as Danone “Bio” which has the function of defecation. China's yogurt market is mainly occupied by such enterprises as Mengniu, Yili, Danone, Bright, etc.

China's milk powder market can be divided into such two categories as infant milk powder and adult milk powder, and the latter can be divided into ordinary milk powder and formula milk powder and can also be divided into many sub-categories according to different ages and sexes. However, China's milk powder market is still led by infant milk powder while the market share of adult milk powder is relatively small. China's baby milk powder can also be divided into high, middle and low grades. After the Melamine Incident, China's middle and high-end infant milk powder market is mainly occupied by Mead Johnson, Wyeth, Nestle, Abbott, Meiji, Dumex and other foreign brands. China's middle and low-end infant milk powder market is mainly occupied by Ashley, Beingmate, Yili and other local brands.

Since in recent years, security incidents have taken place frequently in China's dairy industry especially in the milk powder industry, many consumers especially parents of infants turn to buy imported milk powder due to their seriously descending confidence in milk powder produced by China's local enterprises, creating a favorable market for imported milk powder. In 2010, China imported over 400,000 tons of milk powder, increasing by over 60% over 2009.

In 2009, the dairy consumption per capita in China was less than 20kg, far below whether the level of developed counties or even 20% of the world average. Since the dairy market in developed countries is basically saturated, China with a huge population scale enjoys huge dairy market potential. Besides, in recent years, Chinese consumers' confidence in local dairy enterprises has been greatly descending, which provides market opportunities for foreign-funded enterprises. In addition to milk powder, a traditional advantageous project, China's liquid milk market has also been entered by foreign-funded enterprises. Asahi Breweries, one of the largest beer brewing enterprises in Japan, has entered Chinese liquid milk market. Maeil Dairy in South Korea also starts to enter the Chinese market, and prepares to establish cow cultivation and dairy processing enterprises in Weihai of Shandong. The world dairy giant Danone has already purchased Miaoshi Dairy in 2008 and is actively in touch with New Hope Dairy. It is ready to become the majority shareholder of New Hope Dairy by means of purchasing stock equity.

With China's economic growth, it is predicted that China's dairy market will maintain an annual growth rate of over 10% in the next 10 years, which will be greatly surpassed by the growth rate of the infant milk powder market and other segment markets. Therefore, China's dairy market is considered promising by dairy producing enterprises and investors.

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