November 23, 2006

China's dairy market to grow

China dairy holds enormous growth potential, reported Dutch banking group Rabobank.

The growth has been driven by new entrants and the return of foreign companies, which earlier failed to establish partnership in China.

Demand for dairy products in China, Asia's second-largest dairy market, more than doubled in the past five years to more than 25 million tonnes of liquid milk equivalent in 2005.

However, China remains in a milk net deficit despite production beginning to outpace demand. Consumption was in the growth stage in the smaller cities and rural areas while demand in large cities was getting saturated, Rabobank reasoned.

Rabobank earlier agreed to finance the Chinese dairy industry instead of those in the EU and the US.

Though China remains a net dairy importer but its import structure has been changing in that the country was switching from importing raw materials to "value-added processed products" due to the narrowing price difference between imported milk powder and domestic procurement of raw milk, Rabobank said.

The trend in China's dairy market would be consolidation, it further said.