![](media/image1.wmf)

Required Report - public distribution

**Date:** 10/20/2005

**GAIN Report Number:** CH5075

CH5075

**China, Peoples Republic of**

**Dairy and Products**

**Annual Report**

**2005**

**Approved by:**

Maurice House

U.S. Embassy Beijing, Office of Agricultural Affairs

**Prepared by:**

Casey Bean/Zhang Jianping

**Report Highlights:**

China\'s dairy industry for 2006 is forecast to continue expanding, but
the pace of growth will slow due to higher production costs and slowed
dairy product consumption. Cow milk production for 2006 is forecast to
increase 20 percent to 33.8 MMT, while non-fat dry production is
forecast to decrease 8 percent to 55,000 MT. A new policy effective on
October 15 requiring only pure raw milk be used for pasteurized milk may
result in reduced imports of milk powder. China\'s whey imports are
forecast to continue increasing in 2006 due to strong domestic demand
and limited domestic production. The U.S. will remain the largest whey
supplier to China.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[Production 4](#production)

[Cow milk production for 2006 forecast at 33.8 MMT, a 20 percent
increase from the estimated 28 MMT in 2005
4](#cow-milk-production-for-2006-forecast-at-33.8-mmt-a-20-percent-increase-from-the-estimated-28-mmt-in-2005)

[New policy on pasteurized and UHT milk production, labeling and
identification standard may change production pattern and impact trade
5](#new-policy-on-pasteurized-and-uht-milk-production-labeling-and-identification-standard-may-change-production-pattern-and-impact-trade)

[Fluid use consumption in 2006 forecast to increase 21 percent to 15
MMT, and factory use consumption forecast to increase 18 percent to 19
MMT
6](#fluid-use-consumption-in-2006-forecast-to-increase-21-percent-to-15-mmt-and-factory-use-consumption-forecast-to-increase-18-percent-to-19-mmt)

[Nonfat dry milk consumption for 2006 forecast to decrease 7 percent to
105,000 MT, while whole-fat milk powder to increase 7 percent to 1 MMT
6](#nonfat-dry-milk-consumption-for-2006-forecast-to-decrease-7-percent-to-105000-mt-while-whole-fat-milk-powder-to-increase-7-percent-to-1-mmt)

[Trade 6](#trade)

[U.S. dairy products the only one among six suppliers to increase sales
during 2005
6](#u.s.-dairy-products-the-only-one-among-six-top-suppliers-to-increase-sales-during-2005)

[U.S. the largest whey supplier to China
7](#u.s.-the-largest-whey-supplier-to-china)

[U.S. genetics trade opportunities
7](#u.s.-genetics-trade-opportunities)

[Fluid milk exports for 2006 forecast stable at 31,000 MT, while whole
fat dry milk powder exports will increase 17.2 percent to 34,000 MT.
7](#fluid-milk-exports-for-2006-forecast-stable-at-31000-mt-while-whole-fat-dry-milk-powder-exports-will-increase-17.2-percent-to-34000-mt.)

[PS&D Tables 8](#psd-tables)

[Dairy Tariff Table, Effective on January 1, 2005
11](#dairy-tariff-table-effective-on-january-1-2005)

# Executive Summary

China's dairy industry continues to develop as post forecast in the
previous annual report CH4050, although the pace of growth will slow
during 2006. Total raw milk production for 2006 is forecast to increase
20 percent to 34.94 MMT and cow milk production for 2006 is forecast to
increase 20.71 percent to 33.8 MMT. The pace of grow is forecast to
decrease 2.88 percent for total milk and 3.15 percent for cow milk
respectively due to higher production cost and smaller pace of increase
in consumption

The national standard "The General Rule on Labeling of Pre-Packed
Foods - GB7718-2004", became effective on October 1, 2005. The
regulation requires that pre-packed food labels state the truth and
forbids usage of strange, unclear or confusing words. The State Council
recently issued a new policy requiring that all fluid milk products
containing reconstituted milk (from milk powder) must state
"reconstituted" and indicate percentages of milk. Plants intending to
use reconstituted milk for processing fluid products must register the
product with local Quality Supervision Administration and provide
detailed information about milk powder suppliers and plants' marketing
areas.

As a result of this new requirement, milk powder imports are forecast to
decrease because most imported milk powder is reconstituted for fluid
products. As a third largest supplier to China, U.S. companies may also
be impacted. This looks like a non-tariff barrier to protect domestic
raw milk production.

China's non-fat dry milk production during 2006 is forecast to decrease
8.3 percent to 55,000 MT due to decreased demand and an increase in
supplies of fluid milk and milk powder. Whole-fat milk powder production
for 2006 is forecast to increase 8.9 percent to 1 MMT.

China's whey imports increased from 67,124 MT in 2003 to 186,780 MT in
2005, despite international prices increasing 17.6 percent from January
to August in 2005. This trend will continue into 2006 as China's
livestock and feed industry continues to expand and modernize. China's
fluid milk imports are insignificant and forecast at only 5,000 MT in
2006. Non-fat dry product imports for 2006 are forecast to decrease 5.4
percent to 52,000 MT due to a sharp increase of international prices and
reduced domestic demand. Conversely, whole-fat milk powder imports will
decrease 10.4 percent due to domestic production increases and higher
international prices.

China's dairy exports markets are East and Southeast Asia. Fluid milk
exports for 2006 are forecast stable at 31,000 MT. Hong Kong and Macaw
account for 97 percent of China's total fluid milk exports due to
geographical proximity. Exports of non-fat dry products for 2006 are
forecast to decrease about 7 percent due to domestic production
decreases. Whole-fat milk powder exports for 2006 are forecast to
increase 17.2 percent to 34,000 MT due to Taiwan, Myanmar and Japan
demand increases. Although export volume to Hong Kong may decrease about
8 percent, export value is expected to increase slightly.

# Production

## Cow milk production for 2006 forecast at 33.8 MMT, a 20 percent increase from the estimated 28 MMT in 2005 

China's total raw milk production for 2006 is forecast to increase 20
percent from last year to 34.9 MMT. Other milk **(**goat and
buffalo**)** production for 2006 is forecast to increase 2.7 percent to
1.1 MMT. The pace of increase in raw milk production for both 2005 and
2006 is forecast below that of 2003 (32 percent) and 2004 (28.1 percent)
because of higher production costs and a slower pace of dairy
consumption growth.

The preliminary data of the National Statistics Bureau indicates that in
the first half of 2005 China's cow inventory increased 24.5 percent to
11.5 million head, total milk production increased 22.9 percent to 12.8
MMT and cow milk production increased 24.3 percent to 12.3 MMT
respectively over the same period of 2004. Post estimated the
year-on-year pace of growth for total milk and cow milk production in
2005 at 22.9 percent and 23.8 percent respectively, almost at the same
pace of the half-year level. The top five producing provinces, Inner
Mongolia, Heilongjiang, Hebei, Shandong and Xinjiang have remained the
same as previously stated in last year's annual report CH4050.

The newly announced official numbers for total milk and cow milk
production for 2004 are very close to post's estimation in the previous
report CH4050. Post revised upwards the total milk and cow milk
production numbers for 2004 in this fluid PS&D table from 23.1 MMT to
23.6 MMT and from 22.0 to 22.6 MMT respectively based on official data
from the National Statistics Bureau (NSB).

China's increases in dairy cow inventory will slow during 2006, despite
the 11^th^ Five-Year-Plan (2006-2010). Limited feed resources will
constrain cow herd expansion. The change of heifer proportion supports
this. The heifer ratio dropped from 50 percent in 2002 to estimated 37
percent in 2006. Farmers keep their old cows even after 8 or 9 years.
Although China imported 132,446 head of breeding cows in 2004, not more
than 30 percent could be used for breeding due to quality problems
according to well-known Chinese experts. The Government tightened
breeding cow imports. This factor, combined with the need for genetic
improvement and China's resumption of frozen bovine semen and embryo
imports from the U.S., will provide a trade opportunity for the U.S.
industry.

A new factor is that both raw and processed sectors are experiencing
smaller profit margins due to higher production costs, fierce
competition and price wars between UHT milk and pasteurized milk. The
China Dairy Industry Association (CDIA for processed) stated that the
sales profits of processed products were 6.8 percent in 2002, 6.1
percent in 2003 and 5.4 percent in 2004 respectively. Heavy investment
the last couple of years resulted in a considerable increase of
processing capacity. However, raw milk production lags behind due to
limited feed resources and genetic improvement.

Large imports of milk powder, following tariff reductions after China
joined the WTO, have made it possible for processing plants to
reconstitute better quality milk powder into fluid milk. According to
China Dairy Association (CDA for raw milk), the current C.I.F. price of
imported milk powder is \$1,734-1,858. One ton of milk powder can
reconstitute 8 tons of fluid milk, while domestic procurement price for
8 tons of raw milk is over \$2,478. To reduce costs, some processing
plants lowered procurement prices for raw milk, some even refused to
collect milk from farmers leading to several cases of farmers pouring
out raw milk.

Although production cost has been increasing, market prices of processed
products changed little due to price wars because several cases of dairy
product quality problems have shaken consumers' confidence, and
processors are struggling to maintain sales through reduced prices.

The price range of a maturing young cow in Heilongjiang province dropped
from \$1,982-2,230 to \$1,487-1,735. The price of an adult cow in Hebei
Province is around \$1,239. Heifer prices also decreased considerably.
Even so, farmers are reluctant to buy. Average earnings from a high
quality cow are \$248-372, smaller than the comparable period of 2004.
Post forecasts that China will focus on raising yield production instead
of increasing cow herd size in the next couple of years.

## New policy on pasteurized and UHT milk production, labeling and identification standard may change production pattern and impact trade

A national standard "The General Rule on Labeling of Pre-Packed Foods -
GB7718-2004", became effective on October 1, 2005, requiring that
pre-packed food labels should state the truth and not use strange,
unclear or confusing words. According to "The Guideline of Implementing
GB18-2004" published by China National Standardization Committee, dairy
plants should not use the words "fresh milk" in labeling for pasteurized
or UHT milk. They can only use "pasteurized milk" or "pure milk". This
new requirement resulted in strong opposition from pasteurizing milk
plants that use pure raw milk material because "pasteurized" is a
translation from English to Chinese. This term does not convey an image
of freshness for consumers.

On September 18, 2005, the State Council issued the "Notice of
Strengthening Management on Fluid Milk Production and Marketing"
requiring that only raw milk is allowed for pasteurized milk and
strongly recommending raw milk for UHT milk. From October 15, 2005,
producers should state clearly on labels "reconstituted milk" and the
percentage used in the ingredients list. It requires that plants
intending to use reconstituted milk for fluid products should register
prior production with local quality supervision agency including the
information on 1) imported or domestically procured milk powder
quantity, quality, place and name of milk powder plant; 2) beginning
date and length of production; 3) quantity of fluid products with
reconstituted milk and the percentage of each batch of finished products
and 4) marketing areas of fluid products with constituted milk. Any
change should be notified to the agency 15 days in advance. Without
registration, the Administration of Industry and Commerce will not issue
production license.

On September 30, 2005, the Ministry of Agriculture (MOA) announced the
"Identification of Reconstituted Milk in Pasteurized and UHT Milk to
serve as an industry test standard since there is no national standard.

The notice will likely keep some consumers away from reconstituted milk
because urban, wealthier Chinese pay more attention to health and they
prefer fresh products. This will force producers to adjust product
patterns to develop more value-added products such as flavored yogurt,
enfant formula milk powder, adult functional milk powder or more
varieties of flavored UHT milk.

The new notice could lead to a decrease in milk powder imports because
most imported milk powder is reconstituted for fluid products,
especially after import tariffs for milk powder dropped this year. The
raw milk industry indicates that China imported 121,488 MT of milk
powder in 2004. If this powder is reconstituted (multiply by 8), the
volume would equal the same quantity of raw milk produced by 242,976
head of cows for an entire year, thus affecting the livelihood of many
dairy farmers. The U.S. is the third-largest milk powder supplier to
China's market with sales of \$9 million in 2004 and an estimated \$13
million for 2005.

## Fluid use consumption in 2006 forecast to increase 21 percent to 15 MMT, and factory use consumption forecast to increase 18 percent to 19 MMT

Although China's fluid use and factory use of raw milk are forecast to
increase 21.5 percent and 18.8 percent respectively in 2006, the pace of
increase in fluid use is forecast to drop 5 percent from an estimated 13
MMT in 2005, and factory use is forecast to drop 1.7 percent from the
estimated 16.1 MMT in 2005 due to a slower pace of increase in raw milk
supplies. The slower pace of consumption also impacts demand.
Well-publicized cases of dairy quality problems\--including well-known
domestic and foreign brands\--have shaken consumers' confidence,
according to media reports. Product similarity results in inadequate
consumer demand. Marketing promotion in small cities, towns and in rural
areas is slow. The small pace of increase in urban consumer expenditures
on dairy products (30.5 percent in 2002, 19.0 percent in 2003 and 6.1
percent in 2004) reflects this, though China's GDP growth was 9.5
percent, urban and rural incomes were 9.5 percent and 12.5 percent
respectively in the first half of 2005.

Raw milk consumption for processing fluid products is centered in Inner
Mongolia, Hebei, Shandong, Shanghai, Heilongjiang, Shanxi, Zhejiang
Jiangsu, Liaoning and Beijing. This will continue into 2006.

## Nonfat dry milk consumption for 2006 forecast to decrease 7 percent to 105,000 MT, while whole-fat milk powder to increase 7 percent to 1 MMT

The decrease in nonfat dry milk consumption appears due to lower imports
as the result of higher international prices (e.g., the unit price was
17.6 percent higher) and in part due to available domestic substitution
of other milk. Whole-fat milk powder increases drove decreases in
non-fat. More raw milk going to fluid products has also had an effect
because non-fat product prices are not much higher. This situation will
lead to continued domestic decreases in non-fat milk production in 2006.
In turn, reduced whey production will drive upwards imports of U.S. whey
in 2006.

# Trade

## U.S. dairy products the only one among six top suppliers to increase sales during 2005

In terms of total volume and value, the U.S. is the second largest dairy
supplier to China's market. The position has remained for several years.
China Customs data (WTA) shows that China's total dairy imports from
January to August in 2005 decreased 14 percent in volume to 218,102 MT
and 8.6 percent in value to \$308 million over the same period of 2004.
However, only the U.S. is gaining among the top six suppliers. The U.S.
export volume increased 41.2 percent to 59,013 MT, and the value
increased 65.6 percent to \$41.4 million in the first 8 months of 2005.
Strong U.S. exports appear likely to continue into 2006 because of the
devalued U.S. dollar, EU countries' quota production constraints and
reduced government subsidies in dairy, as well as dry weather in
Australia and New Zealand, will continue to favor imports of U.S.
products.

Although China's fluid imports are forecast to increase 25 percent from
4,000 MT to 5,000 tons, the import quantity is very small due to large
domestic production and constraints in storage and transportation. This
pattern will not change in the next few years.

## U.S. the largest whey supplier to China 

China's why imports have increased from 67,124 MT in 2003 to an
estimated 186,780 MT in 2005, though international prices increased 17.6
percent from January to August in 2005 over that of 2004. Whey imports
account for over 50 percent of China's total dairy imports in volume,
and over 30 percent in value. This trend will continue into 2006 as
China livestock and feed industry continue expanding.

The U.S. is the largest whey supplier to China. U.S. whey exports
reached 54,501 MT (up 44.4%) and \$31.5 million (up 84.7%) from January
to August 2005, accounting for 43.8 percent in volume and 31.7 percent
in value of China's total whey imports. Limited domestic substitution
explains why whey imports are increasing and the tariff is the lowest
among all dairy products. China's strong livestock and feed development,
combined with limited domestic production and substitution, will
continue drive imports in 2006.

## U.S. genetics trade opportunities

China announced approval of 52 U.S. facilities to export frozen bovine
semen and embryos during the 16^th^ meeting of the U.S.-China Joint
Commission of Commerce and Trade (JCCT) held in Beijing on July 11,
2005. Earlier this year, the Chinese quarantine authorities, AQSIQ,
audited and registered all of them. Prior to China's BSE-related trade
suspension on U.S. cattle, beef and products, U.S. exports of semen and
embryos exceeded \$1 million. Further, China changed it policy to
tighten control of breeding cow imports against misuse of tariff-free
breeding cows for commercial purpose.

The above-mentioned new labeling policies are forecast to intensify the
search for raw milk supplies in the foreseeable future. Combined with
China's critical shortage of genetic stocks to improve dairy industry,
frozen bovine semen and embryos imports will also increase steadily.
Opportunities lie ahead in advantageous dairy production areas like
Inner Mongolia, Heilongjiang, Hebei, Shandong, Henan and large cities
like Beijing and Shanghai. The top ten Chinese dairy companies produced
49.5 percent of the total dairy products with 56.8 percent of the total
value in 2004. Most companies have international shareholders or are
joint ventures.

However, if U.S. companies want to invest in China's frozen bovine semen
and embryo industry, they need to consider the challenge of gaining a
larger part of shareholding because of regulations on state-owned
industries with special government permits. Without a larger share,
protection of property may not be guaranteed.

## Fluid milk exports for 2006 forecast stable at 31,000 MT, while whole fat dry milk powder exports will increase 17.2 percent to 34,000 MT. 

Hong Kong and Macau are China's traditional export markets accounting
for over 90 percent of China's total fluid milk exports. This will not
change in 2006 due to geographic convenience for fluid milk.

China's exports of whole-fat milk powder for 2006 are forecast at 34,000
MT, a 17.2 increase from the estimated 29,000 MT in 2005 due to Taiwan,
Malaysia and Japan demand increases. Hong Kong is the largest export
market accounting for almost half of China's total exports. Although
export volume to Hong Kong in 2005 may decrease about 7 percent due to
lower demand in Hong Kong, export value will remain steady. Taiwan,
Malaysia and Japan account for another 30 percent of China's total
exports of whole-fat milk powder.

# PS&D Tables

  ---------------- ---------- ----------------- ---------- ----------------- ------------ ----------------- --------- -------
  **PSD Table**                                                              0.024971     0.085163                    

  **Country**      **China,                                                                                           
                   Peoples                                                                                            
                   Republic                                                                                           
                   of**                                                                                               

  **Commodity**    **Dairy,                                                  (1000                                    
                   Milk,                                                     HEAD)(1000                               
                   Fluid**                                                   MT)                                      

                   2004       Revised           2005       Estimate          2006         Forecast          UOM       

                   USDA       Post              USDA       Post              USDA         Post                        
                   Official   Estimate\[New\]   Official   Estimate\[New\]   Official     Estimate\[New\]             
                   \[Old\]                      \[Old\]                      \[Old\]                                  

  **Market Year               01-2004                      01-2005                        01-2006           MM/YYYY   
  Begin**                                                                                                             

  Cows In Milk     5466       5466              5600       6900              0            8350              (1000     
                                                                                                            HEAD)     

  Cows Milk        22052      22606             23700      28000             0            33800             (1000 MT) 
  Production                                                                                                          

  Other Milk       1055       1078              1090       1110              0            1140              (1000 MT) 
  Production                                                                                                          

  TOTAL Production 23107      23684             24790      29110             0            34940             (1000 MT) 

  Intra EC Imports 0          0                 0          0                 0            0                 (1000 MT) 

  Total Imports    3          3                 3          4                 0            5                 (1000 MT) 

  TOTAL Imports    3          3                 3          4                 0            5                 (1000 MT) 

  TOTAL SUPPLY     23110      23687             24793      29114             0            34945             (1000 MT) 

  Intra EC Exports 0          0                 0          0                 0            0                 (1000 MT) 

  Total Exports    37         31                50         31                0            31                (1000 MT) 

  TOTAL Exports    37         31                50         31                0            31                (1000 MT) 

  Fluid Use Dom.   10315      10315             11606      13000             0            15800             (1000 MT) 
  Consum.                                                                                                             

  Factory Use      12758      13341             13137      16083             0            19114             (1000 MT) 
  Consum.                                                                                                             

  Feed Use Dom.    0          0                 0          0                 0            0                 (1000 MT) 
  Consum.                                                                                                             

  TOTAL Dom.       23073      23656             24743      29083             0            34914             (1000 MT) 
  Consumption                                                                                                         

  TOTAL            23110      23687             24793      29114             0            34945             (1000 MT) 
  DISTRIBUTION                                                                                                        

  Calendar Yr.     0          0                 0          0                 0            0                 (1000 MT) 
  Imp. from U.S.                                                                                                      

  Calendar Yr.     0          0                 0          0                 0            0                 (1000 MT) 
  Exp. to U.S.                                                                                                        
  ---------------- ---------- ----------------- ---------- ----------------- ------------ ----------------- --------- -------

  ----------------- ---------- ----------------- ---------- ----------------- ---------- ----------------- ---------
  **PSD Table**                                                                                            

  **Country**       **China,                                                                               
                    Peoples                                                                                
                    Republic                                                                               
                    of**                                                                                   

  **Commodity**     **Dairy,                                                  (1000 MT)                    
                    Milk,                                                                                  
                    Nonfat                                                                                 
                    Dry**                                                                                  

                    2004       Revised           2005       Estimate          2006       Forecast          UOM

                    USDA       Post              USDA       Post              USDA       Post              
                    Official   Estimate\[New\]   Official   Estimate\[New\]   Official   Estimate\[New\]   
                    \[Old\]                      \[Old\]                      \[Old\]                      

  **Market Year                01-2004                      01-2005                      01-2006           MM/YYYY
  Begin**                                                                                                  

  Beginning Stocks  0          0                 0          0                 0          0                 (1000 MT)

  Production        71         68                70         60                0          55                (1000 MT)

  Intra EC Imports  0          0                 0          0                 0          0                 (1000 MT)

  Total Imports     69         61                88         55                0          52                (1000 MT)

  TOTAL Imports     69         61                88         55                0          52                (1000 MT)

  TOTAL SUPPLY      140        129               158        115               0          107               (1000 MT)

  Intra EC Exports  2          2                 3          2                 0          2                 (1000 MT)

  Total Exports     0          0                 0          0                 0          0                 (1000 MT)

  TOTAL Exports     2          2                 3          2                 0          2                 (1000 MT)

  Human Dom.        138        127               155        113               0          105               (1000 MT)
  Consumption                                                                                              

  Other Use, Losses 0          0                 0          0                 0          0                 (1000 MT)

  Total Dom.        138        127               155        113               0          105               (1000 MT)
  Consumption                                                                                              

  TOTAL Use         140        129               158        115               0          107               (1000 MT)

  Ending Stocks     0          0                 0          0                 0          0                 (1000 MT)

  TOTAL             140        129               158        115               0          107               (1000 MT)
  DISTRIBUTION                                                                                             

  Calendar Yr. Imp. 6          5                 10         7                 0          7                 (1000 MT)
  from U.S.                                                                                                

  Calendar Yr. Exp. 0          0                 0          0                 0          0                 (1000 MT)
  to U.S.                                                                                                  
  ----------------- ---------- ----------------- ---------- ----------------- ---------- ----------------- ---------

  ----------------- ---------- ----------------- ---------- ----------------- ---------- ----------------- ---------
  **PSD Table**                                                                                            

  **Country**       **China,                                                                               
                    Peoples                                                                                
                    Republic                                                                               
                    of**                                                                                   

  **Commodity**     **Dairy,                                                  (1000 MT)                    
                    Dry Whole                                                                              
                    Milk                                                                                   
                    Powder**                                                                               

                    2004       Revised           2005       Estimate          2006       Forecast          UOM

                    USDA       Post              USDA       Post              USDA       Post              
                    Official   Estimate\[New\]   Official   Estimate\[New\]   Official   Estimate\[New\]   
                    \[Old\]                      \[Old\]                      \[Old\]                      

  **Market Year                01-2004                      01-2005                      01-2006           MM/YYYY
  Begin**                                                                                                  

  Beginning Stocks  0          0                 0          0                 0          0                 (1000 MT)

  Production        760        832               780        918               0          1000              (1000 MT)

  Intra EC Imports  0          0                 0          0                 0          0                 (1000 MT)

  Total Imports     113        91                145        67                0          60                (1000 MT)

  TOTAL Imports     113        91                145        67                0          60                (1000 MT)

  TOTAL SUPPLY      873        923               925        985               0          1060              (1000 MT)

  Intra EC Exports  0          0                 0          0                 0          0                 (1000 MT)

  Total Exports     24         25                29         29                0          34                (1000 MT)

  TOTAL Exports     24         25                29         29                0          34                (1000 MT)

  Human Dom.        849        898               896        956               0          1026              (1000 MT)
  Consumption                                                                                              

  Other Use, Losses 0          0                 0          0                 0          0                 (1000 MT)

  Total Dom.        849        898               896        956               0          1026              (1000 MT)
  Consumption                                                                                              

  TOTAL Use         873        923               925        985               0          1060              (1000 MT)

  Ending Stocks     0          0                 0          0                 0          0                 (1000 MT)

  TOTAL             873        923               925        985               0          1060              (1000 MT)
  DISTRIBUTION                                                                                             

  Calendar Yr. Imp. 0          0                 0          0                 0          0                 (1000 MT)
  from U.S.                                                                                                

  Calendar Yr. Exp. 0          0                 0          0                 0          0                 (1000 MT)
  to U.S.                                                                                                  
  ----------------- ---------- ----------------- ---------- ----------------- ---------- ----------------- ---------

# Dairy Tariff Table, Effective on January 1, 2005

  ---------------------- ----------- ------- --------- -------- ---------------
  Tariffs on Dairy                                              
  Products, Effective                                           
  January 1, 2005                                               

                                                                Effective

                                     MFN     General   V.A.T    Rate

                                                                (MFN & VAT) 1/

                                                                

  Fluid Milk             0401.1000   15.0%   40.0%     17.0%    34.89%

                         0401.2000   15.0%   40.0%     17.0%    34.89%

                         0401.3000   15.0%   40.0%     17.0%    34.89%

  Powdered Milk          0402.1000   10.0%   40.0%     17.0%    29.89%

                         0402.2100   10.0%   40.0%     17.0%    29.89%

                         0402.2900   10.0%   40.0%     17.0%    29.89%

                         0402.9100   10.0%   90.0%     17.0%    29.89%

                         0402.9900   10.0%   90.0%     17.0%    29.89%

  Yogurt                 0403.1000   10.0%   90.0%     17.0%    29.89%

                         0403.9000   20.0%   90.0%     17.0%    39.89%

  Whey                   0404.1000   6.0%    30.0%     17.0%    25.89%

                         0404.9000   20.0%   90.0%     17.0%    39.89%

  Butter & Dairy Spreads 0405.1000   10.0%   90.0%     17.0%    29.89%

                         0405.2000   10.0%   90.0%     17.0%    29.89%

                         0405.9000   10.0%   90.0%     17.0%    29.89%

  Cheese                 0406.1000   12.0%   90.0%     17.0%    31.89%

                         0406.2000   12.0%   90.0%     17.0%    31.89%

                         0406.3000   12.0%   90.0%     17.0%    31.89%

                         0404.4000   15.0%   90.0%     17.0%    34.89%

                         0404.9000   12.0%   90.0%     17.0%    31.89%

  Source: China Customs                                         
  ---------------------- ----------- ------- --------- -------- ---------------