For the first five month of 2008, output of China’s solid dairy products was 1,523,000 tons, up 9.32% year-on-year, of which output in May was 298,000 tons, down 10.78% year-on-year. BOABC believes that high raw milk price in China, due to irrational factors including profiteering by dealers, has led to high production cost of solid dairy products in China. Besides, the price of milk powder, mainly formula milk powder, has gone up in general due to the draw factor of foreign brands, well above the expected price level of many consumers, which has restricted the consumption by a considerable number of consumers. Meanwhile, domestic milk powder is gradually losing its edge in cost performance, resulting in weakening competitiveness in the world market and the reduction of export, which all hamper milk powder production. The drop of milk powder production has directly caused the drop of output of solid dairy products.

List

BOABC VIEW POINTS 3

SECTION I. PRODUCTION of MILK and DAIRY PRODUCTS 3

1.1 Raw Milk Production 3

Focus of the Issue 3

Inner Mongolia 3

Heibei 4

Heilongjiang 4

Shaanxi 4

Liaoning 4

Sichuan 5

Tibet 5

Shanghai 5

Raw Milk Price 5

1.2 Dairy Products Production 7

Liquid Milk 7

Solid Dairy Products 7

SECTION II. DAIRY TRADE 8

2.1 Import Trade 8

2.1.1 Analysis of Overall Import Trade 8

2.1.2 Analysis of the Import of Main Dairy Products 9

2.1.3 Analysis of Price of Main Import Items 11

2.2 Export Trade 13

2.2.1 Export of Fresh Milk 13

2.2.2 Milk Powder Export 15

SECTION III. MARKET TRENDS OF DAIRY PRODUCTS 17

3.1 Retail Price of Fresh Milk 17

3.2 Market Trend of Whey Powder 18

3.3 Trend of Milk Powder Market 20

3.4 Market Trend for Lactose 20

3.5 Market Trend of Butter 20

SECTION IV. TREND OF DAIRY ENTERPRISES AND INDUSTRIAL INTEGRATION 21

4.1 Yili 21

4.2 Mengniu 21

4.3 Sanlu 21

4.4 Bright 22

4.5 Sanyuan 22

4.6 Taizinai 22

4.7 Wahaha 23

4.8 Xiajin 23

4.9 Huahuaniu 23

4.10 Yashili 23

SECTION V. NEW TECHNOLOGIES AND NEW PRODUCTS 23

Xi’an Orient Dairy successfully developed the “phytosterol” milk. 23

China for the first time completed the genome sequencing of probiotic lactobacillus. 23

Anhui Expected to Double Dairy Cattle Inventory Given Newly-Acquired Key Breeding Technologies. 24

SECTION VI. NEW PROJECTS OF THE MONTH 24

Inner Mongolia (i): Milk powder factory in Jinshan New Industrial Park of Yili Goup was built. 24

Inner Mongolia (ii): The 2nd phase of skimmed milk powder production line of Mendi Dairy Co. went to production. 24

Shanxi: Construction of the first phase project of Yashili’s base in Yingxian County will wind up soon. 24

SECTION VII. DAIRY POLICIES 25

Industrial Policies for Dairy Products 25

ABOUT BOABC 26