Got Milk? Two Guangxi Dairy Farms Invest in Future

UNCLAS SECTION 01 OF 02 GUANGZHOU 005778 SIPDIS SENSITIVE SIPDIS STATE ALSO PASS USTR USDOC FOR 4410/MAC/MCQUEEN PACOM FOR FPA E.O. 12958: N/A TAGS: EAGR ECON KTDB ECIN CH SUBJECT: Got Milk? Two Guangxi Dairy Farms Invest in Future Consumption ("Journey to the West") Ref: Guangzhou 5479 and previous (U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY. NOT FOR RELEASE OUTSIDE U.S. GOVERNMENT CHANNELS. NOT FOR INTERNET PUBLICATION. ¶1. (U) Summary: Two dairy farms -- one state-owned and the other private -- are participants in a Consulate Guangzhou Agricultural Trade Office project to develop the Chinese market for alfalfa and other products that would contribute to greater milk production in China. Both dairies are investing heavily in both livestock (including milk water buffaloes) and machinery, reflecting hopes that consumption will increase in a country that historically has been averse to dairy products. End Summary. ¶2. (U) After visiting southern Guangxi border and port towns as part of Consulate Guangzhou's "journey to the west" (reftel),Congenoffs headed north for an Agricultural Trade Office (ATO) outreach to two Nanning-area dairies planning to participate in an alfalfa trial. Use of more nutritious alfalfa compared to the low value feed currently used at these dairies is expected to increase per cow milk output significantly. Current per cow output at the Nanning dairies is a low eight tons of milk per cow per year, while U.S. dairies can produce as high an average output as twelve tons per cow per year, though output has reached as high as seventeen tons per cow. The ATO has arranged for the import of nine containers of alfalfa (totaling 216 tons) for the trial expected to be conducted in a number of phases and involving the participation of twelve dairies mostly in Guangdong and Guangxi but with some spillover potentially into other provinces in the Consular District. The Milky Way -------------- ¶3. (U) The first dairy, a sophisticated state-owned- enterprise (SOE),has three thousand cows that produce seventy percent of Guangxi's milk. The dairy also has a large farming operation that produces sugarcane, citrus plants, macadamia nuts, papayas, bananas and wood on a large plantation adjacent to the dairy farm. In order to raise efficiency, the dairy has newly hired a New Zealand dairy expert, has purchased German automatic milking machines, and is participating in the alfalfa project. The farm appeared clean and well run, and the cows appeared healthy, though their diet of low protein fermented sugar cane and corn stalk silage seemed low on nutrition. The day before our visit, the farm received a government certificate for "quality safety" -- essentially a stamp of approval of product quality for consumers. ¶4. (U) Due to a dispute over raw milk prices with a rival private dairy and milk processor which had handled its processing, and the failure of its partner Liulanshan Dairy in Northeast China to provide equipment to build a joint- venture processing factory, the SOE dairy invested RMB 3 million (approximately USD 372,000) last September to purchase its own pasteurizing equipment with a daily processing capacity of twenty tons. Now the farm will process its own milk and no longer will sell it to processing enterprises in cities such as Guangdong's Guangzhou and Zhanjiang or Guangxi's Liuzhou and Guigang. ¶5. (U) In a side note, the dairy director said he wanted to purchase new heavy equipment, such as tractors, for the farm. When the ATO mentioned purchasing U.S. farm equipment, the director said he was interested but no one selling American equipment had ever approached him. He had purchased a Finnish tractor but was unhappy with it due to frequent and expensive maintenance costs. Udderly Interesting -------------- ¶6. (U) Next, we visited the headquarters and pasteurizing plant of a second dairy, a privately-owned operation founded by a businessman from Shenzhen in Guangdong Province. The dairy, Huang Shi Biotech & Dairy Co. Ltd., produces similar products as the first dairy, such as fresh GUANGZHOU 00005778 002 OF 002 milk, drinking yogurt, and fruit-flavored milk, all of which tasted quite good, and claimed to be the largest dairy processor in Guangxi. The dairy has a daily processing capacity of two hundred tons of milk, and monitors the quality of milk at an in-house laboratory. It hopes to increase both its herd size and cow output by crossing its current cows with 12,500 imported cows. Additionally, the dairy is experimenting with expanding water buffalo milk production. The pasteurizing plant was very clean with an observation area so visitors could see the process without disturbing it. ¶7. (U) According to the Huang Shi dairy, the Chinese government started a school milk program in 2000, reaching 500,000 middle and primary school students throughout the country in its first year. Government and dairy industry officials express hope that the number of participating students will expand to fifteen million in 2005, but dairy farm representatives commented that dairy enterprises and their associates shoulder most of the work promoting the benefits of drinking milk to the general public, stating that the government provides very limited resources for this purpose. For instance, local dairies experiment with flavored yogurt and milks as one method used to promote wider acceptance. In Guangxi, the government does help local farmers to improve the breed of local water buffaloes by providing free semen from Indian or Pakistan water buffaloes (which are apparently larger than the Southeast Asian buffaloes common in southern China). Currently, Guangxi only has about 17,000 water buffaloes with an output of approximately two thousand to three thousand tons of milk per year. Comment: Land of Milk and Money -------------- ¶8. (SBU) Though one is state-owned and the other privately- owned, both dairies displayed modern equipment, a high standard of cleanliness, and signs of significant financial investment. The preference for foreign equipment, livestock, and agricultural experts, as well as participation in ATO's alfalfa trials, indicates promise for American dairy farmers and equipment manufacturers seeking new markets. Presently, many Chinese youth consume more dairy products in their diet, often via yogurt and ice cream, and are growing noticeably taller than their parents and grandparents, a reflection of China's growing prosperity, even in relatively poor areas. ¶9. (SBU) Also of interest is the Guangdong entrepreneur who founded the Huang Shi dairy. He was not previously in the dairy business while in Shenzhen but did considerable research on the market growth potential before convincing friends to join him in investing in this new enterprise. ¶10. (SBU) The next message in our "journey to the west" concerns the challenges facing Habitat for Humanity in operate legally within Guangxi. DONG