According to statistics from China Customs, for the first eight months of 2008, China’s dairy import, including goods with 6 customs codes - H.S.0401, H.S.0402, H.S.0403, H.S.0404, H.S.0405 and H.S.0406, totaled 209,390 tons, up 5.04% year on year, of which import in August was 22,940 tons, up 5.73%. BOABC believes that, in August, lowering import price of whey products, which is the main import item of China, against booming domestic demands, had led to conspicuous growth of whey product import in August, leading directly to the growth in the dairy import of the month. In September, the exposure of Sanlu milk powder incident led to the loss of confidence of consumption of domestic milk powder among consumers. So, in September and in years to come, China’s import of milk powder is expected to see marked growth.

List

BOABC VIEW POINTS 3

SECTION I. PRODUCTION of MILK and DAIRY PRODUCTS 3

1.1 Raw Milk Production 3

Focus of the Week 3

Inner Mongolia 3

Hebei 4

Shanxi 4

Liaoning 4

Shandong 4

Jiangsu 5

Henan 5

Shaanxi 5

Tianjin 5

Raw Milk Price 6

1.2 Dairy Production 7

SECTION II. DAIRY TRADE 8

2.1 Import Trade 8

2.1.1 Analysis of the Overall Import Trade 8

2.1 .2 Analysis of Import of Main Dairy Products 9

2.1.3 Price Analysis of Main Import Varieties 11

2.2 Export Trade 14

2.2.1 Fresh Milk Export 14

2.2.2 Export of Milk Powder 16

SECTION III. MARKET TRENDS OF DAIRY PRODUCTS 18

3.1 Retail Price of Fresh Milk 18

3.2 Milk Powder Retail Price 19

SECTION IV. TREND OF DAIRY ENTERPRISES AND INDUSTRIAL INTEGRATION 20

4.1Yili 20

4.3 Mengniu 20

4.4 Bright 21

4.4 Sanlu 22

4.4 Sanyuan 22

4.5 Wandashan 22

SECTION V. Sanlu Milk Powder Incident 22

Truth of the Milk Powder Incident 22

Milk Powder by 22 Enterprises Tested Containing Melamine and the Name List 23

Infant and Young Child Milk Powder by 87 Enterprises Tested Not Containing Melamine and the Name List 24

Results of the Nationwide Special Test for Melamine 26

Impact of Milk Powder Incident on China’s Dairy Industry 27

Domestic Dairy Consumption Undermined by the Milk Powder Incident 27

Milk Powder Incident: a Heavy Blow for China’s dairy Export 27

Milk Powder Incident as a Heavy Blow to Domestic Brands but a Piece of Good News for Foreign Brands 29

SECTION VI. Relevant Policies 29

ABOUT BOABC 31