Voluntary Report - Public distribution

**Date:** 5/30/2008

**GAIN Report Number:** CH8605

CH8605

**China, Peoples Republic of**

**Dairy and Products**

**South China, where opportunity knocks for high value U.S. dairy
ingredients**

**2008**

**Approved by:**

![](media/image1.wmf)Joani Dong, Director

U.S. Agricultural Trade Office Guangzhou

**Prepared by:**

Evid Liu

**Report Highlights:**

In recent years, consumption of dairy products in South China has grown
due to increasing disposable income, demand for protein, number of
stores and improved distribution. Lack of domestic milk spurs demand for
imported dairy ingredients including whey, powdered milk, lactose,
cheese and butter. The US, as a globally dominant supplier of whey and
other dairy ingredients, can compete on price with the EU, Oceania and
South America in China. Long term upward prices constrain exports to
China, although the weakening dollar offers some relief. Current Chinese
standards exclude imports of deproteinized whey for food use. High end
niches including delactose products, functional and energy products are
best prospects.

Includes PSD Changes: No

Includes Trade Matrix: No

Trade Report

Guangzhou ATO \[CH3\]

\[CH\]

# 

# Table of Contents

[**Table of Contents 2**](#table-of-contents)

[I. The way of whey and other high value U.S. dairy ingredients
3](#i.-the-way-of-whey-and-other-high-value-u.s.-dairy-ingredients)

[II. Dietary changes and health concerns encourage dairy consumption
3](#ii.-dietary-changes-and-health-concerns-encourage-dairy-consumption)

[III. Lack of milk prompts need for imports
4](#iii.-lack-of-milk-prompts-need-for-imports)

[IV. Fast growing food processing sectors boost demand for dairy
ingredients
5](#iv.-fast-growing-food-processing-sectors-boost-demand-for-dairy-ingredients)

[Fluid Milk 6](#fluid-milk)

[Bakery 6](#bakery)

[Ice Cream 7](#ice-cream)

[Yogurt 7](#yogurt)

[Milk Formula 8](#milk-formula)

[Chocolate Confectionary 8](#chocolate-confectionary)

[HRI Sector 8](#hri-sector)

[Cheese 9](#cheese)

[V. High-end niches where high value ingredients excel
9](#v.-high-end-niches-where-high-value-ingredients-excel)

[VI. Upward prices versus high price sensitivity
10](#vi.-upward-prices-versus-high-price-sensitivity)

[VII. Chinese standard does not allow deproteinized whey for food use
10](#vii.-chinese-standard-does-not-allow-deproteinized-whey-for-food-use)

[Appendix 1. U.S. Dairy Ingredients and Their Applications
11](#appendix-1.-u.s.-dairy-ingredients-and-their-applications)

[Appendix 2. China\'s Imports of Dairy
Products](#__RefHeading___Toc199123024) 14

[VIII. Post Contact Information 16](#viii.-post-contact-information)

# I. The way of whey and other high value U.S. dairy ingredients

In recent years, consumption of dairy products in South China has
steadily grown due to increasing disposable income, demand for protein,
number of stores and improved distribution. Lack of domestic milk
supply, mostly for fresh or UHT milk, spurs demand for imported dairy
ingredients including whey, powdered milk, lactose, cheese and butter as
ingredients to make ice cream, milk drinks, infant formula, chocolates
and baked products.

As a dominant whey supplier worldwide, the US can produce more whey to
respond to increasing demand from emerging economies such as China,
Russia, India and South East Asian countries. The U.S. dairy industry
has heavily invested in its manufacturing facilities as it sees a bright
future in the global market.

The US is the largest whey exporter to China and holds more than 30
percent share. France is close behind with 28 percent. In addition, the
US is the third largest supplier of powdered milk and cheese to China,
at less than 10 percent share, after the dominant New Zealand and
Australia. EU elimination of subsidies on dairy exports and the
weakening U.S. dollar have made U.S. products more price competitive.
Short supply from Australia due to the drought in past years has also
cultivated increasing interest in sourcing U.S. dairy ingredients.
(*Refer to Appendix 2 for China's imports of dairy ingredients for China
customs data.*)

Other major dairy producers, including the EU, Oceania and South
America, are not as competitive as the US in the global market. For one
thing, the EU's milk production is capped by production quotas. To
capture increasing demand from overseas markets, the EU raised the
production quota by 2 percent, effective April 1, 2008. However,
withdrawal of subsidies on dairy exports hampers EU dairy exports.
Another reason is bad weather in Oceania in past years which has limited
milk production in Australia and New Zealand. Lastly, South American
producers, including Argentina and Brazil, have imposed heavy duties on
exports to ensure dairy supply to their domestic markets.

# 

# II. Dietary changes and health concerns encourage dairy consumption

The Chinese have significantly changed their dietary habits from starch
based to more protein based eating along with increasing disposable
income. Dairy products are regarded as nutritious as they provide rich
protein and calcium. Food products that contain dairy ingredients have
also become popular, owing to positive attributes.

Research indicates that dairy products or dairy components address
symptoms for a range of physical conditions, from bone health to
premenstrual syndromes, from arthritis to obesity. Specific compounds in
milk help reduce hypertension, colon cancer and cardiovascular disease.
Many such positives are employed to develop and promote new products.

On the consumer side, the emerging middle class demands a wide range of
high quality food products, from milk beverage, yogurt, ice cream to
chocolates and baked products, from infant formula to protein powder.
For instance, formulated powdered milk for infants, children and the
elderly are popular, as consumers believe that such products provide
essential nutrients that help children grow or maintain health for the
elderly.

To improve public nutrition, the Chinese government proactively
encourages milk and dairy consumption. A public nutrition study[^1]
indicated that low consumption of dairy and low calcium intake are
common problems among the Chinese. Average daily calcium intake was only
390 milligrams, far less than the government recommended 800-1,000
milligram level.

The latest Chinese dietary pagoda announced in January 2008 (similar to
the U.S. dietary pyramid) has tripled the recommendation from the
previous one to daily intake of 300 grams (equals to 241 lbs. per year)
milk or equivalent dairy products for individuals over 6 years old. The
2005 U.S. Food Pyramid recommends a much higher consumption of dairy
products, three servings a day (about 1-1.5 lbs. of milk), that equals
365--580 lbs. a year. Compared to the actual per capita consumption of
only 56 lbs. in China, there is a big gap between current consumption
and recommended levels.

One of the government's efforts to encourage dairy consumption is the
student milk program, initiated in 2000. It provides subsidized milk to
2 million school students in large and medium cities but for only one
percent of the nation's total student population. This drastically falls
short of demand.

# III. Lack of milk prompts need for imports

China does not produce enough raw milk so it has to rely on imports of
dairy ingredients to meet domestic demand for the next five to ten
years. Whey and powdered milk, both whole milk powder (WMP) and skimmed
milk powder (SMP), make up most imports while cheese and butter account
for only a fraction since Chinese are not big consumers of such
products.

In the last decade, domestic milk production has significantly improved
from a very low base (*see **China Milk Production** graph on page 5*).
Milk production in South China, even though it is one of the wealthiest
regions in the country, is still much lower than the national average,
partly due to heat stress from the humid, subtropical climate and lack
of nutritional hay production in the region. Take the milk yield in CY
2006 as an example. Five Southern China provinces, namely Guangdong,
Guangxi, Fijian, Hunan and Hainan, produced only 436,000 tons of milk,
only 1.3 percent of the country's total output.

Despite the rapid development of the dairy industry in recent years,
China's huge population means per capita milk consumption lags far
behind the world average. For instance, in CY 2006, per capita yearly
dairy consumption in the urban area, where dairy consumption is much
higher than in the rural area, was only 56 lbs.. (25.5 kgs)[^2], about 1
quarter of the world average, or half of Asia's average.

Given limited milk yield, most of the milk is consumed in liquid form,
and very little goes through further processing for condensed or dried
milk. There is almost no cheese and butter production in the country,
not to mention production of derived dairy ingredients, e.g., whey and
lactose that are widely used as ingredients in baked products,
confectionary and ice cream. Therefore, most of the dairy ingredients,
such as whey, cheese and lactose, have to rely on imports.

The import and distribution channel consists of producers/exporters,
importers, distributors of dairy ingredients and the food manufacturers
who use the ingredients to make final products. Large distributors,
e.g., *Pacific Dairy, Huabai,* and *Milky Way,* who usually partner with
exporters, have well- established nationwide or regional network to
provide customers with both products and value-added technical services.
This larger group has the advantage of consistent supply, higher-end
customized ingredients and product solutions. Smaller importers and
distributors operating on a less broad regional basis are more likely to
carry generic products such as powdered milk targeting the middle and
lower end market. Large producers including *Ballentine*, *Glanbia*,
*Land O'Lakes*, and *Hilmar* actively promote their products.

# IV. Fast growing food processing sectors boost demand for dairy ingredients

Fast growing food processing and manufacturing sectors, e.g., ice cream,
milk beverages, and formulated powdered milk, tremendously boost demand
for various dairy ingredients, from whey, powdered milk and lactose to
cheese and butter. High-end food manufacturers competing on innovation
and product quality actively seek high quality ingredients to add value
to products.

As the market and products become more sophisticated, U.S. exporters and
producers should maintain close communication with Chinese clients to
develop ingredients that meet specifications.

*US Dairy Export Council (USDEC*)'s marketing efforts, Chinese food
manufacturers have learned how to use dairy ingredients for
confectionary, ice cream, infant formula and baking. Below highlights
how key sectors[^3] apply dairy ingredients. (*Refer to Appendix 1 for
more details on ingredients and
applications.*)![](media/image2.jpeg){width="2.879861111111111in"
height="1.75625in"}![](media/image3.jpeg){width="2.879861111111111in"
height="2.575in"}![](media/image4.jpeg){width="2.879861111111111in"
height="1.9333333333333333in"}

## Fluid Milk 

The fluid milk sector, which consists of mostly flavored milk drinks and
UHT (Ultra Heat Treated) milk, plus some fresh/pasteurized milk,
realized sales of US\$15 billion in 2007, a 14 percent increase from the
previous year. Due to shortage of fresh milk, milk powder (mostly from
imported sources) is reconstituted to make final products. Domestic
players including *Mengniu* and *Yili* (both from Inner Mongolia),
*Bright* (from Shanghai), and *Chenguang*, *Classics* and *Yantang* (all
from Guangdong) dominate the market. Imported products hold very limited
share in this sector. As the most popular dairy products, demand for
milk drinks will steadily climb in the next five years. Health and
wellness products, including high-calcium, low fat or no-fat milk drinks
are also on the rise.

## Bakery

The bakery sector is fast growing, and product development with
innovative high quality ingredients are strategies that high-end
bakeries in South China employ to compete in the premium market. In CY
2007, sales of baked products in South China grew 9 percent from the
previous year to US\$ 3.8 billion, outperforming the country's average
growth of 7 percent.

Just 10 years ago, high-end bakeries didn't even exist in South China.
Now there are many upscale bakery chains and outlets for bakery products
including *Bread Talk (photo on right), Queen's Cake Shops*, *Starbucks*
(*photo on page 8*) and *Häagen Dazs*, not to mention outlets at 5-star
hotels. Western style items, for instance, cheese cakes, have become
very popular. Chinese bakers and consumers are aware of dairy
ingredients, including cheese, cream, and whey.
![](media/image5.jpeg){width="2.8618055555555557in"
height="2.954861111111111in"}

## 

## Ice Cream

Ice cream has become a year 'round snack or dessert, rather than only
eaten in summer. A full range of products are available in the market,
from low end products targeting less wealthy consumers to world renowned
brands such as
[*Häagen-Dazs*](http://www.haagen-dazs.com/segicd.do?productId=305)
serving upscale niches in large cities. The sector keeps a steady pace
at a 10 percent annual growth rate. In 2007, sales reached US\$ 4.9
billion.

## Yogurt

Yogurt is very popular for Chinese consumers, as it is perceived as
nutritious and healthy. Products with added value, for example, those
added with "probiotic" ingredients -- live bacteria that pass through
the stomach to the gastrointestinal tract where they help maintain a
healthy balance between 200 plus kinds of bacteria living there, and
thus help digestive and immune systems - are increasingly consumed on a
daily basis by many urban consumers. To capture the share in the fast
growing market, both international and large domestic manufacturers
aggressively develop and promote new products with innovative healthy
ingredients. *Danone*, *Bright*, *Mengniu* and *Yili* are the most
popular brands. In 2007, sales of total yogurt products rose 20 percent
to US\$ 3.1 billion, and probiotic yogurt grew at a much faster pace --
a whopping 38 percent. ![](media/image6.jpeg){width="5.65in"
height="2.39375in"}

## 

## Milk Formula

Milk formula for infants and children also records dynamic growth, with
greater presence of premium products. Milk formula for the elderly has
also grown along with the increasing senior population. In addition to
milk powder, high quality whey protein concentrates (WPC), lactose and
milk calcium are usually incorporated in the formula to fortify the
nutritional level of final products. Sales of formulated milk powder for
infants and children exceeded US\$ 2.8 billion, a 28 percent leap from
the previous year. The market is shared by international manufacturers
including *Nestle, Wyeth, Mead Johnson* and domestic ones such as
*Yili*, and *Yashili*.

## 

## Chocolate Confectionary

Sales of chocolate confectionary grow steadily. Chocolates are popular
treats and gifts for youths, especially on holidays and special
occasions such as wedding ceremonies. Milk powder, whey, WPC and lactose
are commonly used in confectionary to enhance flavor, texture, color and
nutrition. CY 2007 saw annual sales of US\$ 900 million with 11 percent
growth. International companies, including *Nestle, Effem, Cadbury,
Ferrero, Le Conte, Kraft, Hershey* and *Guylian* dominate the market
while domestic players have only a small share targeting the middle and
lower end market.

## HRI Sector

The fast growing restaurant sector is another driver for cheese
consumption. Pizza restaurants and other western style restaurants have
gained increasing popularity, especially in large cities, where cheese,
together with many other high quality food ingredients, are included in
the menu as a key selling point to local consumers. In addition, upscale
Chinese restaurants create fusion cuisine by creatively using cheese and
cream.

Pizza chains, including *Pizza Hut*, *Papa John's* and many smaller
pizza makers, have grown like wild in recent years, due to wide product
choices and fast service offered to sit-in, take-out and home delivery
consumers. Take *Pizza Hut* as an example. Since 1990 when the first
*Pizza Hut* restaurant was opened in China, the chain has opened 350
restaurants in over 80 cities, of which 30 are located in Guangzhou
alone (*see photo on right*), the largest city in South China. Every
week, there is a new *Pizza Hut* opened in China.

## Cheese

Cheese has not been a part of the Chinese diet for a long time so almost
no cheese was produced in China until recently. Product knowledge and
awareness of cheese is very limited among Chinese consumers except
mozzarella as a topping for pizza. Foreigners living in China and the
Chinese consumers who adopt western eating habits make up most cheese
consumers. However, with increasing knowledge and availability of cheese
products, sales of cheese are rapidly growing from a small base in large
cities. Cheese sales in 2007 rose 18 percent to US\$ 77 million.

Value added ingredients, for instance, cheese powder made by
spray-drying cheese have gained increasing presence in many food
products, as they add health and nutritional value and enhance the
flavor of final products. Due to the very low moisture content, it
offers the important advantage of storage at room temperature, rather
than in a refrigerator, and thus significantly cuts logistical and
storage costs. Typical applications of cheese powder include biscuits,
savory snacks, baked products, sauces, dips and dressings, ready meals,
and even reconstituted cheese.

Though in the short run, cheese will not become a key component in large
volume in Chinese food consumption, education to consumers and food
service providers will help increase awareness and interest in health
conscious consumers, and thus accelerate sales. Large cheese producers,
including *Kraft* and *Land O'Lakes f*rom the US, and *Ballentine* from
Australia, have started promoting both natural and processed cheese to
local high-income consumers. Some manufacturers make cheese products
targeting children such as string cheese, to cultivate future cheese
consumption.

Most cheese in the market is imported. Cheddar (for burgers),
mozzarellas (for pizzas) and cream cheese (for cheese cakes) from the
US, France, New Zealand and Australia are the main varieties. Cheese
production in China, only at small volumes, is mostly processed cheese
slices produced by large dairy product manufacturers such as *Kraft* and
*Shanghai Bright*.

# V. High-end niches where high value ingredients excel

A number of high-end niche markets where dairy ingredients may add value
are worth exploring. These include：

-   Delactose products for lactose intolerance, a problem of lactose
    allergy or dis-absorption that over 90 percent of the Chinese
    population reportedly suffer from

-   Performance enhancing food and drinks that enhance endurance, muscle
    growth and recovery, and athletic nutrition

-   Disease recovery, e.g., specific milk compounds that help reduce
    cholesterol, colon cancer and cardiovascular diseases

-   Functional and energy food and drinks for health and wellness

# VI. Upward prices versus high price sensitivity 

Globally tight supplies and increasing demand have pushed prices of
dairy ingredients to historic levels. Despite price fluctuations, Post
sees upward price trends for the longer term due to increasing demand
from emerging economies, increasing cost on dairy production and lack of
milk and dairy ingredients stocks in the industry.

High prices have already constrained, and will impact imports of dairy
ingredients for the highly price sensitive China market. In 2007, global
record high prices of dairy products changed the pattern of dairy
ingredients trading to and from China. Despite low domestic milk
production, high prices in overseas markets drove China's dairy exports
to record high levels - 135,000 tons (mostly milk and powdered milk) in
volume terms, an 80 percent leap. However, import volumes (mostly whey
and powdered milk) dramatically dropped, 9 percent on whey imports to
168,000 tons, and 27 percent on powdered milk to 99,000 tons. However,
the weakening dollar against the Chinese currency somewhat ease prices
for Chinese purchases. (*Refer to Appendix 2. for more details on
China's dairy ingredients imports.)*

Price sensitive manufacturers want ingredients that add the most value
to final products. Therefore, they are less interested in making such
products as UHT milk or fresh milk that have limited profit margins, and
more willing to produce and promote products of higher profit margin
such as bio-yogurt.

# 

# VII. Chinese standard does not allow deproteinized whey for food use

"Deproteinized whey," a modified dairy product obtained by removing
protein and/or lactose from milk or whey, typically contains 3-8 percent
protein while "whey" typically contains 11-13 percent protein. In many
dairy export countries, whey and deproteinized whey are classified as
separate products. In the US deproteinized whey is under the general
product classification "dairy product solids" or DPS and is accepted for
food use.

However, China's *Hygienic Standard of Whey Powders* (GB 11674 -- 2005)
sets minimum protein content levels for food-use whey at 10 percent for
non-demineralized whey powder and 12 percent for demineralized whey
powder. Such standards are also de facto applied to food-use
deproteinized whey (also known as permeate) which usually contains 3--8
percent protein, as current standards do not accommodate the category of
deproteinized whey. Thus, the standard has become a trade barrier that
prohibits imports of deproteinized whey as food ingredients.

+---------------------------+------------------------------------------+
| # Appendi                 |                                          |
| x 1. U.S. Dairy Ingredien |                                          |
| ts and Their Applications |                                          |
+---------------------------+------------------------------------------+
| **Ingredients**           | **Application**                          |
+---------------------------+------------------------------------------+
| **Whole Milk Powder       | For bakery, confectionary, dairy,        |
| (WMP)** is the product    | prepared mixes, reconstituted milk, milk |
| resulting from removing   | drinks, formulated powdered milk as:     |
| water from milk and       | \--an economical source of dairy solids, |
| contains not less than 26 | \--a convenient form of milk that does   |
| percent, but not more     | not require refrigeration, and \--as     |
| than 40 percent milkfat   | easily and readily transported and       |
| and not more than 5.0 %   | stored dairy ingredients.                |
| moisture ( as determined  |                                          |
| by weight of moisture on  |                                          |
| a milk solids-nonfat      |                                          |
| basis).                   |                                          |
+---------------------------+------------------------------------------+
| **Skim Milk Powder        | For bakery, confectionery, dairy, meat   |
| (SMP)** is the product    | products and prepared mixes as:\         |
| resulting from removing   | \--an economical source of nonfat dairy  |
| fat and water from milk   | solids.\                                 |
| and contains lactose,     | \--a source of high-heat dairy solids,   |
| protein and minerals in   | important for good loaf volume in        |
| the same relative         | breads.\                                 |
| proportions as in the     | \--a source of low-heat dairy solids,    |
| fresh milk from which it  | important for optimizing sensory         |
| was made. It contains not | properties in dairy foods and            |
| more than 5.0% moisture   | beverages.\                              |
| (by weight). The fat      | \--a partial replacement for whey        |
| content is not more than  | protein concentrate that provides        |
| 1.5% (by weight) unless   | similar concentrations of lactose but    |
| otherwise indicated.      | different types of protein and           |
|                           | minerals/ash.\                           |
|                           | \--an easily and readily transported and |
|                           | stored dairy ingredient.                 |
+---------------------------+------------------------------------------+
| U.S. **cheese** is made   | Cheese is a key component of many food   |
| from                      | products around the world because of its |
| [milk](http://en.         | flavor, performance and versatility. It  |
| wikipedia.org/wiki/Milk), | is used as ingredients in pizza, pasta,  |
| usually by                | western cuisine, cheese cake, baked      |
| [coagulation]             | goods and desserts, as U.S. cheeses add  |
| (http://en.wikipedia.org/ | flavor, improve food texture, boost      |
| wiki/Coagulation_(milk)). | nutrition, offer a range of              |
| The milk is acidified,    | functionality and enhance marketing      |
| typically with a          | appeal and add value to the final        |
| [bacterial                | products.                                |
| culture](http             |                                          |
| ://en.wikipedia.org/wiki/ |                                          |
| Microbiological_culture), |                                          |
| then the addition of the  |                                          |
| [enzyme](http://en.w      |                                          |
| ikipedia.org/wiki/Enzyme) |                                          |
| [rennet](http://en.w      |                                          |
| ikipedia.org/wiki/Rennet) |                                          |
| or a substitute (e.g.     |                                          |
| acetic acid or vinegar)   |                                          |
| causes coagulation, to    |                                          |
| give curds and whey.      |                                          |
+---------------------------+------------------------------------------+
| All U.S. **whey           |                                          |
| Ingredients** comes from  |                                          |
| cheese manufacturing via  |                                          |
| a closely monitored       |                                          |
| production process. The   |                                          |
| fluid and sweet whey are  |                                          |
| expelled during cheese    |                                          |
| making and are further    |                                          |
| processed into whey       |                                          |
| powder, reduced-lactose   |                                          |
| whey, demineralized or    |                                          |
| reduced-mineral whey,     |                                          |
| whey protein concentrate  |                                          |
| (WPC) or whey protein     |                                          |
| isolate (WPI). During     |                                          |
| this further processing,  |                                          |
| lactose --- a component   |                                          |
| of the whey --- is        |                                          |
| extracted from the whey   |                                          |
| as well.                  |                                          |
+---------------------------+------------------------------------------+
| **Sweet Whey** is         | For baked goods, confectionary, snacks,  |
| obtained by drying fresh  | cheese processing, dessert and ice cream |
| whey (derived during the  | as an economical source of dairy solids  |
| manufacture of cheeses    | with 8%-9% salt/ash content.\            |
| such as Cheddar and       | \--a means to enhance color during high  |
| Swiss) that has been      | temperature cooking and baking.\         |
| pasteurized and to which  | \--a source of high-heat processed dairy |
| nothing has been added as | solids, important for good loaf volume   |
| a preservative.           | in breads.\                              |
| Sweet-type whey powder    | \--a free-flowing, easy-to-disperse      |
| contains all the          | carrier in dry blends when classified as |
| constituents of fresh     | a non-hygroscopic whey powder.           |
| whey, except moisture, in |                                          |
| the same relative         |                                          |
| proportion.               |                                          |
+---------------------------+------------------------------------------+
| **Acid whey powder** is   | For dairy, bakery, snack and other food  |
| obtained by drying fresh  | products as:\--an economical source of   |
| whey (derived during the  | dairy solids with high calcium           |
| manufacture of cheeses    | content.\--a source of lactic acid       |
| such as cottage and       | flavor.                                  |
| ricotta) that has been    |                                          |
| pasteurized and to which  |                                          |
| nothing has been added as |                                          |
| a preservative. Acid-type |                                          |
| whey powder contains all  |                                          |
| the constituents of fresh |                                          |
| whey, except moisture, in |                                          |
| the same relative         |                                          |
| proportion.               |                                          |
+---------------------------+------------------------------------------+
| **Reduced lactose whey**  | For dairy, meat, snack and other food    |
| is obtained by selective  | products as:\                            |
| removal of lactose from   | \--an economical source of dairy         |
| whey. The lactose content | solids.\                                 |
| of the dry product may    | \--an alternative to sweet whey powder,  |
| not exceed 60 percent.    | when lower lactose and higher protein    |
| Removal of lactose is     | concentrations are desired, and the      |
| accomplished by physical  | higher mineral/ash content has positive  |
| separation techniques     | consequences.                            |
| such as precipitation,    |                                          |
| filtration, or dialysis.  |                                          |
| The acidity of reduced    |                                          |
| lactose whey may be       |                                          |
| adjusted by the addition  |                                          |
| of safe and suitable PH   |                                          |
| ingredients.              |                                          |
+---------------------------+------------------------------------------+
| **Whey Permeate**\* (also | Confectionary, baked goods, beverage,    |
| called de-proteinized     | cheese processing, dessert, ice cream,   |
| whey or Dairy Product     | salad dressing, sauce and soup.          |
| Solids (DSP)) is a        |                                          |
| modified dairy product    |                                          |
| obtained by removing      |                                          |
| protein and / or lactose, |                                          |
| and / or minerals from    |                                          |
| milk or whey through      |                                          |
| technical separation      |                                          |
| techniques such as        |                                          |
| precipitation, filtration |                                          |
| or dialysis.              |                                          |
+---------------------------+------------------------------------------+
| **Demineralized whey**    | For dairy, bakery, confectionery, infant |
| (also called              | formula, yogurt, salad dressing, sauces, |
| reduced-minerals whey) is | soup, dessert and ice cream and other    |
| obtained by removing a    | food and nutritional products as:\       |
| portion of the minerals   | \--an economical source of dairy         |
| from pasteurized whey.    | solids.\                                 |
| Typical levels of         | \--an alternative to sweet whey powder,  |
| demineralization are 25,  | when lower mineral/ash content and a     |
| 50 and 90 percent. The    | high lactose content is desired for      |
| dry product may not       | nutritional or flavor reasons.\          |
| exceed 7 percent ash.     | \--an alternative to lactose, when a     |
| Demineralized whey is     | moderate protein content provides added  |
| produced by physical      | nutritional or functional advantages.    |
| separation techniques     | beverage, confectionary,                 |
| such as precipitation,    |                                          |
| filtration or dialysis.   |                                          |
+---------------------------+------------------------------------------+
| **Whey Protein            | Widely applicable to a large range of    |
| Concentrate** (WPC) is    | products from formulated powdered milk,  |
| obtained by removing      | functional food and beverage, sports     |
| sufficient non-protein    | nutrition, yogurt and cheese making,     |
| constituents from         | processed meat and fish products,        |
| pasteurized whey so that  | desserts, ice cream, baked goods and     |
| the finished dry product  | confectionary and functional products as |
| contains more than 34     | a source of dairy solids and high        |
| percent to over 80        | quality protein at different             |
| percent protein. WPC is   | concentration levels with various        |
| produced by physical      | properties, including good emulsifying,  |
| separation techniques     | fat or water binding, thickening         |
| such as precipitation,    | properties.                              |
| filtration or dialysis.   |                                          |
+---------------------------+------------------------------------------+
| **Whey Protein Isolate**  | Widely applicable to a large range of    |
| (WPI) is obtained by      | products from formulated milk powder,    |
| removing sufficient       | functional food and beverage, sports     |
| non-protein constituents  | nutrition, yogurt and cheese making,     |
| from whey so that the     | processed meat and fish products,        |
| finished dry product      | desserts, ice cream, baked goods,        |
| contains not less than 90 | confectionary, snack and other food and  |
| percent protein. WPI is   | nutritional products as:\                |
| produced by physical or   | \--a concentrated source of              |
| chemical separation       | high-nutritional-quality protein for     |
| techniques such as        | protein supplementation.\                |
| filtration or ion         | \--a source of protein that is soluble   |
| exchange. Acidity may be  | or forms a stable colloidal dispersion   |
| adjusted by the addition  | at ambient temperature and all pH        |
| of safe and suitable PH   | conditions.\                             |
| ingredients.              | \--a source of protein with good         |
|                           | emulsifying, fat binding and water       |
|                           | binding/thickening properties.\          |
|                           | \--a source of protein with good         |
|                           | heat-setting (gelling) and whipping      |
|                           | properties.                              |
+---------------------------+------------------------------------------+
| **Lactose** is removed    | For dairy, infant formula, bakery,       |
| from whey during the      | snack, confectionery, and other food and |
| concentration process.    | nutritional products to:\                |
| This milk sugar is a      | \--act as a free-flowing,                |
| white to creamy-white     | non-hygroscopic carrier in dry blends.\  |
| crystalline product       | \--absorb and enhance flavors and absorb |
| possessing a mildly sweet | colors.\                                 |
| taste. It may be          | \--contribute to color and flavor        |
| anhydrous, contain one    | development through the Maillard         |
| molecule of water or be a | browning reaction.\                      |
| mixture of both.          | \--replace other sweeteners as a source  |
|                           | of solids with low sweetness intensity.\ |
|                           | \--act as the natural carbohydrate       |
|                           | energy source in infant formulas.\       |
|                           | \--act as the functional carrier in      |
|                           | pan-coating candy centers and forming    |
|                           | tablets.                                 |
+---------------------------+------------------------------------------+
| \* Despite being a common |                                          |
| food ingredient in many   |                                          |
| countries, whey permeate  |                                          |
| is not allowed for food   |                                          |
| use in China as it sets a |                                          |
| minimum protein content   |                                          |
| of 10 percent.            |                                          |
+---------------------------+------------------------------------------+
| *Source: U.S. Dairy       |                                          |
| Export Council*           |                                          |
+---------------------------+------------------------------------------+

  -------------- -------------------- ---------------- ---------------- ---------------- --------- -----------
  **Appendix 2.                                                                                    
  China\'s                                                                                         
  Imports of                                                                                       
  Dairy                                                                                            
  Products**                                                                                       

  **HS**         **Description**      **Import Volume                                    **Share   **%
                                      ( Metric tons)**                                   %**       Change**

                                      **CY 2005**      **CY 2006**      **CY 2007**                **- 07/06
                                                                                                   -**

  ** 0402**      **Condensed milk or  **108,029.50**   **136,046.10**   **99,096.10**    **100**   **-27.2**
                 cream**                                                                           

  Including:                                                                                       

   04022100      Milk & Cream In      61,625.60        67,448.60        51,242.60        51.7      -24
                 Solid Forms Of                                                                    
                 \>1.5% Fat,                                                                       
                 Unsweetened                                                                       

   04021000      Milk & Cream In      42,598.70        62,385.90        40,416.00        40.8      -35.2
                 Solid Forms                                                                       
                 Of\<=1.5% Fat                                                                     

   04022900      Milk & Cream In      2,579.80         5,083.40         6,512.40         6.6       28.1
                 Solid Forms Of                                                                    
                 \>1.5% Fat,                                                                       
                 Sweetened                                                                         

   04029100      Concentrated Milk &  1,190.30         1,097.10         845.4            0.9       -23
                 Cream, Unsweetened                                                                
                 (Excl. In S                                                                       

   04029900      Sweetened Milk &     35.1             31.1             79.7             0.1       156
                 Cream (Excl. In                                                                   
                 Solid Form)                                                                       

  ***Key                                                                                           
  exporting                                                                                        
  countries***                                                                                     

                 New Zealand          82,578.10        104,860.80       71,904.80        72.6      -31.4

                 Australia            12,168.60        11,235.90        12,481.10        12.6      11.1

                 United States        5,950.30         13,890.30        6,543.40         6.6       -52.9

                 France               526.4            652.6            1,822.70         1.8       179.3

  ** 0404**      **Whey**             **188,006.00**   **184,505.10**   **167,584.00**   **100**   **-9.2**

  Including:                                                                                       

   04041000      Whey And Modified    187,277.30       184,496.50       166,733.30       99.5      -9.6
                 Whey                                                                              

   04049000      Products Consisting  728.7            8.6              850.7            0.5       9,813.00
                 Of Natural Milk                                                                   
                 Constituents,                                                                     

  ***Key                                                                                           
  exporting                                                                                        
  countries***                                                                                     

                 United States        77,071.90        66,056.60        49,722.80        29.7      -24.7

                 France               44,276.80        47,293.10        47,168.00        28.1      -0.3

                 Finland              10,537.00        11,360.00        12,260.00        7.3       7.9

                 Netherlands          13,861.30        8,818.60         11,235.90        6.7       27.4

                 Germany              1,305.20         4,802.50         7,992.40         4.8       66.4

                 Australia            12,823.90        11,266.30        6,368.50         3.8       -43.5

                 Ireland              8,483.10         8,535.20         6,201.10         3.7       -27.4

                 Argentina            795.8            2,475.70         5,046.50         3         103.8

                 New Zealand          2,845.30         2,619.90         4,786.70         2.9       82.7
  -------------- -------------------- ---------------- ---------------- ---------------- --------- -----------

  -------------- --------------------- --------------- --------------- --------------- --------- ----------
  **HS**         **Description**       **Import Volume                                 **Share   **%
                                       ( Metric                                        %**       Change**
                                       tons)**                                                   

                                       **CY 2005**     **CY 2006**     **CY 2007**               **- 07/06
                                                                                                 -**

  ** 0405**      **Butter, oils from   **12,834.90**   **12,781.20**   **14,002.10**   **100**   **9.6**
                 milk**                                                                          

  including                                                                                      

   04051000      Butter                7,317.00        7,510.70        9,748.20        69.6      29.79

   04059000      Other Fats & Oils     5,467.40        5,219.90        4,181.30        29.9      -19.9
                 Derived From Milk                                                               

   04052000      Dairy Spreads         50.5            50.6            72.6            0.5       43.54

  ***Key                                                                                         
  exporting                                                                                      
  countries***                                                                                   

                 New Zealand           7,604.20        10,518.50       10,541.50       75.3      0.2

                 Australia             1,025.90        655.4           1,788.50        12.8      172.9

                 France                939             227.6           694.6           5         205.1

                 Belgium               813.9           217.1           278.9           2         28.4

                 Netherlands           146             225             203.1           1.5       -9.7

                 Ireland               640.9           159.8           152.6           1.1       -4.5

                 Germany               361.2           93.2            109.2           0.8       17.1

  ** 0406**      **Cheese and curd**   **7,177.70**    **9,892.00**    **13,190.00**   **100**   **33.3**

  including                                                                                      

   04069000      Cheese                3,821.30        5,938.60        6,639.80        50.3      11.8

   04063000      Processed Cheese, Not 2,853.70        3,023.70        4,231.20        32.1      39.9
                 Grated Or Powdered                                                              

   04062000      Grated Or Powdered    191.7           512.1           1,629.80        12.4      218.3
                 Cheese                                                                          

   04061000      Fresh Cheese,         305.6           410.6           679.3           5.1       65.5
                 Including Whey Cheese                                                           
                 & Curd                                                                          

   04064000      Blue-Veined Cheese,   5.4             7.1             10              0.1       41.8
                 Other-Veined Cheese                                                             
                 Prod. By                                                                        

  ***Key                                                                                         
  exporting                                                                                      
  countries***                                                                                   

                 New Zealand           3,455.30        4,051.30        5,424.90        41.1      33.9

                 Australia             2,312.00        3,463.20        4,417.50        33.5      27.6

                 United States         306.9           809.8           1,193.20        9         47.4

                 Germany               169.2           352.8           530.2           4         50.3

  ** **          France                154.1           192.2           293.3           2.2       52.6

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

# VIII. Post Contact Information

For further information about the China market, please visit our website
at [www.usdachina.org](http://www.usdachina.org/) or contact any of the
following USDA offices in China:

**FAS/Office of Agricultural Affairs (OAA), Beijing**

5-2 Qijiayuan Diplomatic Compound

Jianguomenwai, Beijing, China, 100600

Ph: (8610) 6532-1953

Fax: (8610) 6532-2962

E-mail: <agbeijing@fas.usda.gov>

**Agricultural Trade Office (ATO), Beijing**

Kerry Center, South Tower

24^th^ Floor Suite #2425

No. 1 Guanghua Lu, Beijing, China 100020

Ph: (8610) 8529-6418

Fx: (8610) 8529-6692

E-mail: <atobeijing@fas.usda.gov>

**IPR Office**

E-mail: <yuanchuan.liang@usda.gov>

**Agricultural Trade Office (ATO), Guangzhou**

14/F, Office Tower

China Hotel, Guangzhou, China 510015

Ph: (86-20) 8667-7553

Fx: (86-20) 8666-0703

E-mail: <atoguangzhou@fas.usda.gov>

**Agricultural Trade Office (ATO), Shanghai**

Shanghai Center, Suite 331

1376 Nanjing West Road, Shanghai, China 200040

Ph: (8621) 6279-8622

Fx: (8621) 6279-8336

E-mail: <atoshanghai@fas.usda.gov>

**Agricultural Trade Office (ATO), Chengdu**

1222 Western Tower\
No. 19, 4th Section, Renmin Nan Road, Chengdu, China 610041\
Ph:   (8628) 8526 8668\
Fx: (8628) 8526 8118\
E-mail: <atochengdu@fas.usda.gov>

**Animal and Plant Health Inspection Service (APHIS), Beijing**

Room 618, Beijing International Club Office Building

No. 21 Jianguomenwai Avenue, Beijing, China 100020

Ph: (8610) 6532-3212

Fx: (8610) 6532-5813

E-mail: <theresa.booyle@aphis.usda.gov>

[^1]: Yang, Xiaoguang, *The nutrition and health status of Chinese
    People*, presented at Food Summit in China 2006, Xiamen

[^2]: China Animal Husbandry Yearbook, 2007

[^3]: Sales values for each sector from Euromonitor