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China's Growing Thirst for Milk Hits Global Market

A young child drinks milk outside his home in Beijing. Milk consumption in China has tripled in just eight years. (AFP/Getty Images)

"I have a dream," Prime Minister Wen Jiabao of China once said. But his dream wasn't about civil rights for all or racial harmony. It was about a future where every Chinese child would have enough milk to drink — a half-liter a day for each child, to be exact.

Wen's vision has given rise to a gigantic new market of milk drinkers in China, even as the demand there and in other developing nations has driven up prices worldwide.

In the United States, for example, a gallon of milk now costs about the same as a gallon of gasoline. And in China, some shoppers say they'll have to cut back if the government doesn't subsidize milk.

The final report in a six-part series

Milk Prices Grow with Consumption

The Chinese government has responded to the problem by placing curbs on milk prices since January. Even so, it has granted permission for another 10 percent price hike next week. Average milk consumption in China has nearly tripled in just eight years, driven by the newfound wealth and dining habits of China's burgeoning middle class.

"Some people think that drinking milk and eating bread are signs of a Westernized, modern lifestyle. But it's also more convenient than making rice porridge, which takes ages," says Cai Meiqing, a nutrition professor at the Shanghai Jiao Tong University.

External Factors Affect Market

At a recent dairy cow conference in Shanghai, the mood was one of optimism. Entrepreneurs at stalls selling milking technology vied for space with the publishers of Holstein Cow magazine, while novice dairy farmers put up posters seeking cows by the thousands.

The government offers big tax incentives and cheap loans to dairy farmers as China's demand for more milk to feed its huge, thirsty populace grows. The dairy market might be gangbusters, but Edward Zhang, who attended the conference and sells dairy equipment for the Swedish company DeLaval, says the rising milk prices don't necessarily translate into more money for farmers.

He says consumers are paying more for the frothy stuff mainly because farmers are paying more for feed, due to shortages and price hikes around the world. Demand for biofuel also has pushed up global feed prices, because crops that would have been used to feed the cows are being used in fuel production.

Prices 'Beyond Imagination'

And even though fresh milk isn't easily exported, milk powder is, and this has also led to higher dairy prices. Only 7 percent of milk produced globally is traded across borders because it spoils easily, according to the Food and Agriculture Organization of the United Nations. This means that much of the international trade is in milk powder, which is then reconstituted to make milk or milk products.

"Dairy prices are beyond ... anybody's imagination from a year ago even, although they are slowly coming down," says Merritt Cluff, an economist at the Food and Agricultural Organization in Rome.

The biggest factor in increased milk prices, Cluff says, has been a change in European Union policy that resulted in subsidies to farmers being drastically cut.

The second-biggest factor is milk consumption in China and Southeast Asia, where "income-led growth has certainly changed the dairy sector around globally," Cluff says.

That, coupled with the effects of drought in major exporters Australia and New Zealand, has led to supply problems on the international markets. Headlines around the world lament Japan's "butter crisis," production cuts by Finnish cheesemakers and Hong Kong shoppers stockpiling baby formula. Some German consumers have taken to calling the Chinese — the world's biggest importer of milk products — "the milk snatchers."

Dairy Companies Spread Influence

But Wei Kejia, the vice president of China's Milk Association, says the country is being victimized unfairly.

"I don't think we in China are influencing the supply of dairy products in other countries. We're not importing that much," he says.

As Chinese dairy companies expand, their influence is being felt in unexpected ways.

The TV talent-show blockbuster Supergirl has an audience of 20 million and lets viewers vote for their favorite contestants. Its sponsor? Mengniu Group, a dairy company whose sales went up five-fold after the show debuted. The company ended up changing Chinese popular culture, and creating a whole new generation of milk converts along the way.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

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Transcript

SCOTT SIMON, host:

Price of milk in the United States has become just about as exorbitant as gasoline. One reason: the vast new markets of thirsty milk drinkers in developing countries like China.

In the latest installment in our food series, NPR's Louisa Lim reports from Shanghai.

LOUISA LIM: I have a dream, China's premier Wen Jiabao once said. But his dream wasn't his civil rights for all or racial harmony. It was of a future where each Chinese child would have enough milk to drink - half a liter of milk per child per day to be exact. That's creating a gigantic new market of milk drinkers coming to shop at supermarkets like this one.

And they're milk drinkers who are now dealing with higher milk prices.

Unidentified Man: (Chinese spoken)

LIM: It's up at least 50 percent since last year's (unintelligible).

Unidentified Woman: (Chinese spoken) It's so expensive (unintelligible). The government should subsidize milk, she says, otherwise we'll just have to cut back.

The government has been trying to listen to shoppers' concerns. Since January, Beijing's put curbs on milk prices, but even so, it's given permission for another 10 percent price hike next week. Average milk consumption is zooming up in China. In just eight years it's almost tripled. That's driven by new wealth and new dining habits among China's burgeoning middle class as nutritionist Cai Meiqing explains.

Ms. CAI MEIQING (Nutritionist): (Through translator) Some people think that drinking milk, eating bread is the sign of a westernized modern lifestyle. But it's also more convenient than making rice porridge, which takes ages.

LIM: At the third annual dairy cow conference in Shanghai, the mood is one of optimism. Stores selling milking technology vied for space with the publishers of Holstein Cow magazine, while novice dairy farmers put up posters seeking herds of thousands of cows.

The government offers big incentives to dairy farmers as China needs more milk to feed its huge, thirsty populace. It's evidently a flourishing sector, but Edward Zhang, who sells dairy equipment for the Swedish company DeLaval, says the price rises aren't necessarily translating into more money for farmers.

Mr. EDWARD ZHANG: That's - many come from (unintelligible) price increase around China, generally. The reason is there are resource shortages, and the second (unintelligible) of the price increase around the world.

LIM: Global feed prices have been pushed up by the demands of biofuel. And even though fresh milk isn't easily exported, milk powder is. An increased demand for that is also pushing up the price of dairy products.

Mr. MERRITT CLUFF (Economist): Dairy prices are beyond probably anybody's imagination thought of a year ago even. Probably, nobody can explain why they have reached the heights they have reached.

LIM: Merritt Cluff is an economist at the Food and Agricultural Organization in Rome. Trying to explain the inexplicable, he says one important factor has been a change in European Union policy, drastically cutting subsidies to farmers.

Mr. CLUFF: The second biggest factor certainly would be China and southeast Asia, where income-led growth has basically changed the dairy sector around globally.

LIM: That and a drought in major exporters, Australia and New Zealand, have led to supply problems on the international markets as apocalyptic headlines make clear. Japan is suffering from a butter crisis, Finnish cheesemakers are cutting production; German consumers are even calling Chinese the "milk snatchers," as China is now the world's biggest importer of milk products. But the vice president of China's Milk Association, Wei Kejia, says it's being unfairly victimized.

Mr. WEI KEJIA (Vice President, China's Milk Association: (Through translator) I don't accept this way of thinking. I don't think we in China are influencing the supply of dairy products in other countries. We're not importing that much.

(Soundbite of music)

LIM: As Chinese dairy companies expand, their influence is being shown in unexpected ways. This commercial was for "Supergirl," a talent show watched by a 20 million strong audience who voted for their favorites. Today it's probably the largest ever democratic voting exercise in China. Its sponsor: Mengniu Dairy Company, whose sales went up five-fold. The company ended up changing Chinese popular culture and converting a whole new generation to milk product along the way.

Louisa Lim, NPR News, Shanghai. Transcript provided by NPR, Copyright NPR.

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