Voluntary Report - public distribution

**Date:** 3/5/2007![](media/image1.jpeg){width="2.811111111111111in"
height="1.8020833333333333in"}

**GAIN Report Number:** CH7605

DRAFTCH7603

# China, People's Republic of

#  

# Market Development Report

# 

# South China is Ready for U.S. Alfalfa

**Approved by:**

![](media/image2.wmf)Joani Dong

U.S. Agricultural Trade Office

**Prepared by:**

Ken Chen

**Report Highlights:**

South China\'s robust economy, growth of the dairy industry, receptive
dairymen, greater demand for milk by increasingly health conscious
consumers and favorable import tariffs, coupled with raw milk shortfalls
point to market opportunities for U.S. alfalfa, key to a balanced dairy
diet. Challenges associated with the region\'s subtropical climate and
lack of quality forage at favorable prices adversely impact milk
production, reproduction and health. With the help of ATO/Guangzhou
since 2004 to promote the use of U.S. alfalfa in South China, dairymen
have taken notice.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Guangzhou \[CH3\]

\[CH\]

South China\'s robust economy, growth of the dairy industry, receptive
dairymen, greater demand for milk by increasingly health conscious
consumers and favorable import tariffs, coupled with raw milk shortfalls
point to market opportunities for U.S. alfalfa, key to a balanced dairy
diet. Challenges associated with the region\'s subtropical climate and
lack of quality forage at favorable prices adversely impact milk
production, reproduction and health. With the help of ATO/Guangzhou
since 2004 to promote the use of U.S. alfalfa in South China, dairymen
have taken notice.

![](media/image3.jpeg){width="2.895138888888889in"
height="2.0416666666666665in"}

Historically, dairy products have not been a significant part of the
southern Chinese diet. That is steadily changing, especially in the
prosperous urban areas. Recognizing growing demand, dairy cows were
introduced into the area about forty to fifty years ago. Southern China
dairy farmers have made highly significant advances in breeding, feeding
and overall management during recent years that have led to improved
milk production.

However, there are special challenges that center around feed, climate
and dairy cattle health issues. The high price of land in and around
densely populated cities reduces pastureland. Thus, dairy cows in the
region have traditionally been confined to barns or corrals and fed
fresh corn stalks, corn silage or freshly cut grasses. With such feeds,
it is essentially impossible to supply balanced diets to maintain sound
body condition and ensure satisfactory production, reproduction and
animal health. Incorporating large amounts of grain or grain by-products
and protein supplements has been used to compensate for low forage
quality. This approach often creates health and production problems as
an adequate amount of good quality forage is critical in maintaining
proper rumen function and avoiding metabolic diseases such as *acidosis*
(excessive acid in the rumen due to low amounts of forage intake).

Additionally, the Holstein breed, which is used predominantly in South
China herds, and even those, albeit to a lesser extent, of the Jersey
breed, were developed for use in cooler climates than can be found in
southern Chinese provinces. Heat stress has a detrimental effect on
these and other breeds of dairy cows worldwide. However, the hot, humid
weather in South China and elsewhere, poses a special challenge for
dairymen. Milk production and reproduction suffer if weather conditions
are ignored. Careful attention must be given to modifying diets and
providing housing and facilities (e.g., fans and water sprinklers) that
will minimize heat stress problems and enhance cow comfort. Diet and
climate related difficulties are sometimes worsened by uninformed care
of the cows by the farmers. For example, dairymen often do not realize
the extent to which stressed cows adversely affect milk production. An
average cow in South China produces four to five metric tons (MT) of
milk a year while a cow in the Southern United States produces eight to
ten, mainly due to the lack of quality forage and heat stress.

To tackle these problems, the ATO/GZ initiated and developed a Dairy
Improvement Project in 2004-2006 with the assistance of the U.S.
*National Hay Association (NHA).* This Project had several approaches to
improving the South China Dairy industry. During the initial phase of
the Project, veterinarians and U.S. dairy specialists were brought in to
provide educational programs for the dairy industry and to consult with
farmers. The ATO/GZ and the NHA cooperated in a second phase of the
Project wherein research studies were instigated and conducted on three
South China dairy farms to evaluate the effectiveness of US alfalfa hay
for lactating cows. The third phase of the Project included meetings
sponsored by ATO/GZ, NHA and local dairy associations. Management
recommendations, the research results and hay marketing information were
presented. In addition, NHA personnel made farm visits as well as
feeding and management recommendations during this period.

The receptive Chinese dairymen became convinced of the need to improve
management techniques, reduce heat stress, improve cow comfort and
provide quality forage. The effectiveness of quality alfalfa as a forage
was of much interest. Another selling point for alfalfa relates to
increased forage intake due to better palatability which in turn not
only gives the cows more nutrients to produce milk but also maintains
better body condition which helps with breeding management and health
issues.

Over the past several years, various dairy association have indicated
that an optimum goal in South China is to boost a cow's average
production to six tons of milk a year. The ATO/GZ -- NHA Projects have
helped these associations reaffirm that such a goal is realistic.
Improved management, enhancing cow comfort and providing quality forage
are keys to assuring economical milk production, enhancing reproduction
and optimizing health. Use of quality alfalfa is key to balanced dairy
diets.

Nonetheless, it isn't easy for South China dairymen to have access to
alfalfa. A highly desired solution would be to grow alfalfa locally.
Unfortunately, for the area's dairy farmers, alfalfa cannot be
successfully grown in the vicinity due to heavy monsoonlike rains and
heat. They could source alfalfa from northern provinces such as Ganshu,
Inner Mongolia, Shan'xi and Shandong. However, transportation costs
climb steeply as gasoline prices increase and government agents penalize
overloaded trucks sourced from the north. Moreover, supply from that
region can be spotty, of low quality and relatively expensive.
Therefore, careful monitoring of costs for delivered alfalfa and
availability from North China is essential in determining feasibility of
exporting alfalfa.

At this time, the competition for baled alfalfa from other countries'
exporters is negligible. The last time U.S. alfalfa was exported to
South China took place from the early 1980's to 2000. A U.S. invested
dairy farm was the only customer. Now after a six year hiatus and as a
result of the recent ATO/GZ -- NHA marketing efforts outlined above,
several South China dairy farms are placing orders, mostly for the grade
of "good" alfalfa (Crude Protein or "CP" 18-20%, Relative Feed Value or
"RFV" 150-170) sold at about CIF US\$200 per MT. The "premium" grade is
sold at CIF US\$230 and may become affordable if the Chinese "renminbi"
(RMB) continues to appreciate. Due to the lack of a national grading
system for alfalfa in China, Chinese dairymen need to be educated about
more scientific ways to discern quality differences rather than
subjective sensory evaluation such as color and texture. Effective fiber
gauged by RFV or the RFQ value now available with some laboratories are
important measures of quality.
![](media/image4.jpeg){width="2.3958333333333335in"
height="2.3958333333333335in"}

Before the baled alfalfa is shipped overseas, it must be fumigated.
After fumigation, a phytosanitary certificate issued by the *USDA Animal
and Plant Health Inspection Service (APHIS)* must be provided to the
Chinese importer who will submit it for clearance by *Chinese Inspection
and Quarantine (CIQ).*

To ship the alfalfa at competitive prices to China, U.S. exporters need
to weigh not only price (which is determined by acres in production,
rainfall, harvesting situation and market demands from U.S. and overseas
markets) but also trucking and processing costs. After alfalfa arrives
at U.S. ports, exporters must figure in Chinese tariffs, shipper and
Chinese agent expenses.

In 2001 the Chinese government implemented a policy to waive the 13%
value added tax (VAT) on imported baled alfalfa to promote raw milk
production. Thus, importers are left to pay the 9% CIF value as tariff
on baled alfalfa (Tariff No.: 1214.9000) and 5% on alfalfa meal or
pallet (Tariff No.: 1214.1000).

Container vessel transportation is the best choice in terms of cost,
speed and protection from the elements. Alfalfa can be sourced from the
western states and loaded at U.S. west coast ports, such as Seattle in
Washington, Portland in Oregon and San Francisco in California. Shipping
costs stay at reasonable levels because Chinese manufactured commodities
flood in leaving many empty containers to travel back to China. As
Chinese exports to the US grow, some hay exporters believe that ocean
freight could drop although rising fuel cost must be factored in. There
are highly developed ports available in this region such as Yantian,
Shekou and Huangpu ports. Certain shipping lines only operate out of
designated ports. It usually takes about a week for dairy farmers to
clear goods with customs and CIQ. Then containers are transported and
unloaded on the farms.

Dairy farms, especially the larger ones, prefer to buy directly from
U.S. exporters to minimize cost. Nevertheless, a trustworthy import
agent is critical for a U.S. exporter who plans to sell his products to
mid- and small sized farms. These farms tend to purchase small volumes
each time and lack staff to handle importation matters. A good agent
finds customers and handles payment by L/C. An agent normally charges
farms 1-2% handling commission of the total commodity value and about 5%
to cover the government mandated resale tax.

![](media/image5.jpeg){width="2.3020833333333335in"
height="1.7291666666666667in"}

Demand for alfalfa depends on increased consumer demand for dairy
products. Both the Chinese government and savvy parents recognize dairy
products as one of the best sources of nutrients such as calcium and
protein, especially for school-aged children and the elderly. Facing
strong competition from Ultra Heat Treated (UHT) milk produced by the
northern Chinese, South China farms strive to defend and further market
share by labeling their pasteurized milk as "fresh milk", which helps
consumers to identify it as a better-value product and pay premium
prices willingly.

Once the South China market opens to U.S. alfalfa, growth is expected to
be significant. According to the *National Hay Association (NHA)*, baled
alfalfa shipment to China is estimated to reach 5,000 MT valued US\$ 1
million in 2007. In the foreseeable future, with growth expected to
climb 5,000 MT annually, the market could even become comparable to
South Korea which imported 128,500 MT valued US\$25 million in 2006.

**Appendix (6 tables):**

1.  **U.S. exports of alfalfa hay to top three markets and to the world,
    Calendar Year (CY) 2001-2006 (US\$ millions)**

+------------+-------+--------+---------+---------+---------+---------+
|            | **2   | **     | *       | *       | *       | *       |
|            | 001** | 2002** | *2003** | *2004** | *2005** | *2006** |
+------------+-------+--------+---------+---------+---------+---------+
| # Japan    | 66.71 | 114.75 | 120.99  | 136.19  | 125.66  | 120.83  |
+------------+-------+--------+---------+---------+---------+---------+
| **South    | 18.44 | 22.59  | 21.89   | 19.97   | 19.98   | 25.38   |
| Korea**    |       |        |         |         |         |         |
+------------+-------+--------+---------+---------+---------+---------+
| **Taiwan** | 5.01  | 10.24  | 7.87    | 7.89    | 9.65    | 10.65   |
+------------+-------+--------+---------+---------+---------+---------+
| **World    | **95  | **15   | **1     | **1     | **1     | **1     |
| Total**    | .83** | 3.57** | 58.35** | 71.53** | 65.09** | 64.44** |
+------------+-------+--------+---------+---------+---------+---------+

2.  **Dairy cattle population and milk production**

> **in three South China provinces, CY 2004**

+------------------+-----------------------+---------------------------+
| **Province**     | **Dairy cattle        | **Milk production         |
|                  | (head)**              | (tons)**                  |
+------------------+-----------------------+---------------------------+
| # Guangdong      | 44,300                | 109,372                   |
+------------------+-----------------------+---------------------------+
| **Guangxi**      | 32,000                | 43,500                    |
+------------------+-----------------------+---------------------------+
| **Fujian**       | 71,900                | 214,000                   |
+------------------+-----------------------+---------------------------+

3.  **Baled alfalfa from Northern China**

+-------------------------+--------------------------------------------+
| # Crude                 | 16%-17%                                    |
|                         |                                            |
| # Protein               |                                            |
+-------------------------+--------------------------------------------+
| # Re                    | \<140                                      |
| lative Feed Value (RFV) |                                            |
+-------------------------+--------------------------------------------+
| # Origin price          | 850RMB/ton (US\$110/ton)                   |
+-------------------------+--------------------------------------------+
| # Trucking cost         | 650RMB/ton (US\$84/ton)                    |
+-------------------------+--------------------------------------------+
| # On                    | 1,500RMB/ton (US\$194/ton)                 |
| farm price in Guangdong |                                            |
+-------------------------+--------------------------------------------+

*Note: 1US\$=7.7RMB("renminbi", Chinese currency)*

4.  **Main ports in South China**

  ------------------- ---------------------------------------------------
  **Port**            **City, Province**

  **Huangpu**         Guangzhou, Guangdong

  **Nansha**          Guangzhou, Guangdong

  **Shekou**          Shenzhen, Guangdong

  **Yantian**         Shenzhen, Guangdong

  **Fangcheng**       Fangchenggang, Guangxi

  **Fuzhou**          Fuzhou, Fujian
  ------------------- ---------------------------------------------------

5.  **Alfalfa guidelines**

  -------------- -------------- -------------- -------------- --------------
  **Quality**    **ADF**        **NDF**        **RFV**        **Crude
                                                              Protein**

  **Supreme**    \<27           \<34           \>185          \>22

  **Premium**    27-29          34-36          170-185        20-22

  **Good**       29-32          36-40          150-170        18-20

  **Fair**       32-35          40-44          130-150        16-18

  **Utility**    \>35           \>44           \<130          \<16
  -------------- -------------- -------------- -------------- --------------

*Note:*

1.  *ADF: Acid Detergent Fiber; NDF: Neutral Detergent Fiber*

2.  *Relative Feed Value (RFV) calculated using the Wisconsin/Minnesota
    formula.*

```{=html}
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```
6.  **Documentation required. (For reference only. Always consult and
    confirm with your Chinese importer.)**

+-----------------------------------------------------------------------+
| **(a) For U.S. Exporters:**                                           |
+-----------------------------------------------------------------------+
| -   Commercial Invoice. It should include the following information:  |
|                                                                       |
| > \* description of goods                                             |
| >                                                                     |
| > \* value of each item                                               |
| >                                                                     |
| > \* name and address of shipper and consignee                        |
| >                                                                     |
| > \* country of origin                                                |
| >                                                                     |
| > \* place and date of shipment                                       |
| >                                                                     |
| > \* number and types of containers                                   |
| >                                                                     |
| > \* marks & numbers                                                  |
| >                                                                     |
| > \* weight (net & gross)                                             |
|                                                                       |
| Importer will determine the numbers of copies required.               |
+-----------------------------------------------------------------------+
| -   Bill of Lading. It should include:                                |
|                                                                       |
| > \* name of shipper                                                  |
| >                                                                     |
| > \* name and address of consignee                                    |
| >                                                                     |
| > \* destination port                                                 |
| >                                                                     |
| > \* description of good                                              |
| >                                                                     |
| > \* all charges                                                      |
| >                                                                     |
| > \* number of bill of lading full sets                               |
|                                                                       |
| \* carrier acknowledgement of receipt of shipment                     |
+-----------------------------------------------------------------------+
| -   Packing List. It should indicate weight and content of shipment.  |
+-----------------------------------------------------------------------+
| -   Phytosanitary Certificate issued by the U.S. Animal and Plant     |
|     Health Inspection Service (APHIS). For detailed information,      |
|     please refer to:                                                  |
|     <http                                                             |
| ://www.aphis.usda.gov/import_export/plants/plant_exports/index.shtml> |
+-----------------------------------------------------------------------+
| -   Certificate of Fumigation. Contact APHIS for information about    |
|     qualified fumigators.                                             |
+-----------------------------------------------------------------------+
| **(b) For Chinese Importers:**                                        |
+-----------------------------------------------------------------------+
| -   Import License: an importer must have proper business             |
|     registration to be allowed to import or export.                   |
+-----------------------------------------------------------------------+
| -   Certificate of Import Phyto Quarantine issued by the General      |
|     Administration of Quality, Supervision, Inspection and Quarantine |
|     (AQSIQ). An importer needs to apply for this certificate with the |
|     Provincial Department of Inspection and Quarantine (CIQ) in his   |
|     area.                                                             |
+-----------------------------------------------------------------------+
| -   The waiver on Value Added Tax (VAT): it must be applied and       |
|     issued before an importer clears goods with customs and CIQ at    |
|     port.                                                             |
+-----------------------------------------------------------------------+