China's milk industry should invest in the future, even though the near-term outlook is quite bleak, according to the China Academy of Agriculture.

Following China's entry into the World Trade Organization (WTO) in December, the output of China's milk industry is expected to drop.

However, a study by the academy says it is essential now to upgrade enterprises' producing capacity.

Cheng Guoqiang, leader of the study and the adviser of the Ministry of Agriculture, noted that, after WTO entry, the prices of milk products will lower, which will benefit consumers but cut the income of milk producers and cow breeders.

Milk consumption and import will definitely rise, according to Cheng.

According to China's WTO promise, the tariff on milk products will be cut to 10 percent from the current 30 percent.

Generally, Cheng said, domestic milk enterprises cannot compete with their foreign counterparts because of their backward technologies and small-scale production.

"Chinese milk enterprises will face a hard time in the short run," Cheng said.

However, Cheng pointed out that when WTO's Treaty on Agriculture comes into effect in 2005, and the developed countries cancel their subsidy on milk production and exports, the operational cost of milk firms in developed countries will rise.

"It will help the Chinese milk enterprises to attract foreign investment and upgrade their technologies, equipment and product quality," Cheng said.

Cheng added that it will also speed up the restructuring of the milk industry, and foster home conglomerates and brands in the sector.

To make it through the hard times and seize the opportunity, the Chinese milk industry should focus on three points, said Du Ying, director of the Industrial Policy and Regulation Department under the Ministry of Agriculture.

First, the milk enterprises should enlarge their size through a combination of production, procession and sales, which makes it possible to enrich the product mix and utilize the capital more effectively.

Then, China should establish a comprehensive quarantine system on milk products.

Finally, the government and milk enterprises should make a joint effort to cultivate milk consumption and expand demand.

Du cited the Milk for Student project as an example to cultivate a generation of Chinese accustomed to drinking milk.

Statistics from the China Association of Dairy Industry show the average Chinese drinks 6.4 kilograms of milk per year, or 6.4 percent of the world's average. The per capita milk consumption stands at 300 kilograms in developed countries.

Zheng Xinming, president of the Wandashan Milk Product Group, said it is important to foster brand names and improve the base for cow husbandry.

"I think the key battle for the market lies in milk resources, namely good bases for cow husbandry," he said.

According to statistics provided by the China Association of the Diary Industry, the country has more than 1,500 milk product enterprises, with an annual output of 8 million tons.

However, 90 percent are small, with a daily output lower than 100 tons.

(China Daily March 14, 2002)