Tainted milk incident may reverse increase in China's milk consumption

China's milk consumption, which rose 9.3 percent last year, may fall next year as consumer fears, stoked by the recent tainted milk incidents, drive them away from milk products.

Consumption levels would be stagnant at least until 2010 on concerns over dairy products tainted with chemicals, according to UBS.

UBS said in a report liquid milk consumption in China may recover in 2010, following the pattern of consumer behavior after other food safety cases in China and elsewhere in Asia.

However, parents may choose foreign-produced milk powder as a replacement for domestic products in China's large cities from now on.

According to data compiled by Bloomberg, about 3 percent of milk consumption in China is from powdered products.

UBS's report compared China's powdered milk imports and exports since 1990. Data for 2008 are based on USDA forecasts made in the fourth quarter of last year (2007).

The previously forecasted 8.3 percent growth estimate for China in 2008 would not be reached, as thirst for milk will plunge for the rest of this year and decline in 2009, the UBS report said.

UBS said Nestle SA. and Danone will see a rise in milk-powder orders in China, though gains will be little, relative to worldwide sales. The country's two biggest milk producers, China Mengniu Dairy Co and Inner Mongolia Yili Industrial Group Co will be hit hard and will need time to rebuild.