(xinhua)
Updated: 2007-07-26 09:20

China's major dairy producers have called a halt to their long-term sales promotion schemes due to the pressure from rising production costs, according to the Dairy Association of China.

The no-promotion practice in Beijing and Harbin, two cities with a steady dairy consumption, was carried out in accordance with an agreement signed on June 21 by 14 dairy producers and will later be expanded to other major cities such as Shanghai, Guangzhou and Chengdu.

The dairy enterprises, including leading players Mengniu, Yili, and Bright Dairy & Food, hold a 90-percent share of the country's market.

A salesperson of dairy products in a supermarket in Beijing said the price of packaged milk had also risen on top of the promotion being canceled.

"The present price of domestic dairy products is nearly the same as that in 2005," said Fan Xueshan, director of the Beijing Creamery Association, "but the breeding cost of cows has increased a lot in recent years."

Statistics showed the price of corn, a major raw material for feedstuff, rose 14.7 percent in the first half of the year and registered a ten-year average high between January and April.

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The tight supply of raw material imports also contributed to the rise in costs. Powdered milk output from New Zealand and Australia, China's major importing partners, decreased due to drought.

Chinese dairy enterprises have been reluctant to raise their prices for fear of losing their share in the fiercely competitive market.

"The dairy enterprises used to find other ways to cut costs or directly pay for the higher costs when the production costs increased," said Wang Huaibao, deputy director of the Diary Association of China.

Wang said only one third of the country's dairy enterprises were making profits and another third were suffering losses, although the whole sector recorded a 23-percent annual growth rate in the past six years.

Continued sales promotions have caused dairy producers to lose about five billion yuan (667 million U.S. dollars) in sales income, 91 percent of the total for the whole sector in 2006, according to the Diary Association of China.

With the dairy enterprises struggling with narrowing profit margins, dairy farmers have also suffered due to the low price of crude milk. Statistics showed dairy farmers could only make less than 10 percent of the total profits for the sector.

Dairy farmers in Shanxi province were reported to have sold their homebred cows, worth 20,000 yuan each before, at several thousand yuan for the meat in May.

That would greatly harm the enthusiasm of dairy farmers and further undermine the development of domestic dairy industry, Fan said.

China's annual milk consumption per person is 6.6 kg, compared with the world average of 102 kg.

The interests of dairy farmers and producers should be prioritized to ensure the long-term development of domestic dairy industry, Wang said.