VZCZCXRO0919
RR RUEHCN RUEHGH
DE RUEHGH #0498/01 3190946
ZNR UUUUU ZZH
R 140946Z NOV 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7330
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
INFO RUEHBJ/AMEMBASSY BEIJING 2279
RUEHCN/AMCONSUL CHENGDU 1536
RUEHGZ/AMCONSUL GUANGZHOU 1507
RUEHHK/AMCONSUL HONG KONG 1698
RUEHSH/AMCONSUL SHENYANG 1528
RUEHIN/AIT TAIPEI 1329
RUEHGH/AMCONSUL SHANGHAI 7931

UNCLAS SECTION 01 OF 02 SHANGHAI 000498 
 
SENSITIVE 
SIPDIS 
 
USDA FOR DLP AND FAS/OCRA/CHINA 
HHS FOR OGHA/STEIGER, BHAT, ABDO AND PASS TO FDA/LUMPKIN 
STATE FOR EAP/CM, OES/PCI, EEB/TPP/ABT 
USDOC FOR ITA/MAC/OCEA SZYMANSKI 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EAGR SENV TBIO CH
SUBJECT: GOT MILK? - SHANGHAI THIRSTY FOR FOREIGN IMPORTS 
 
This message is Sensitive But Unclassified and for official use 
only.  Not for distribution outside of U.S. Government channels 
or via the internet. 
 
¶1.  (SBU) SUMMARY: Shanghai stores have sold out of imported 
milk in the wake of the recent melamine scandal.  Chinese 
authorities maintain that there has been no change in China's 
import milk regulations, but some retailers and consumers 
believe that a slowdown of imports is a deliberate move to 
protect the domestic milk industry.  The problem seems unique to 
Shanghai, highlighting the differences in the local market 
compared to other cities in China and may suggest a lack of 
confidence in food safety measures among locals.  At this stage, 
the Consulate has seen no indication that the shortage of 
imported milk is anything more than a supply and demand problem 
brought on by hoarding.  END SUMMARY. 
 
¶2.  (SBU) As a result of the early September revelation that 
Chinese-produced milk and infant formula has been found to be 
contaminated with the industrial chemical melamine, major 
grocery stores around Shanghai have completely sold out of 
imported UHT milk (ultra-high temperature processed milk, i.e., 
long-life boxed milk) during the week of November 10, with 
scattered shortages noted earlier in the month.  While large 
quantities of imported boxed milk could be seen prominently 
displayed in central locations in many stores in early October 
(a month after the melamine scandal was reported in the media), 
over the past two weeks all that can be found on shelves are a 
few boxes of imported rice milk and even fewer boxes of 
fortified soy milk.  The unavailability of imported UHT milk has 
caused some to suggest that the Chinese government is purposely 
"banning" or "holding up" imported milk in an effort to protect 
the domestic milk industry. 
 
¶3.  (SBU) Shanghai Consulate's Agriculture Trade Office 
contacted ZHOU Guoliang, Director, Division of Supervision of 
Animals and Plants, Shanghai Entry-Exit and Quarantine Bureau 
(CIQ).  He said that there has been no change in China's import 
milk regulations.  He indicated that CIQ has conducted random 
checks on imported milk for melamine (as it has done for the 
domestic supply since the dairy crisis first occurred), but 
maintained that these quality supervision checks have not slowed 
the release of foreign product onto the market and that no 
foreign product has been found to contain melamine.  (NOTE: 
According to a local retail chain manager, CIQ inspects imported 
milk products because some imports could incorporate milk powder 
of Chinese origin.  END NOTE.)  Zhou also offered that some 
commodity imports as a whole have declined recently, which he 
attributed to the global financial crisis -- people have less 
money in their pockets and therefore are buying fewer imported, 
often more expensive products. 
 
¶4.  (SBU) The response from local grocery retailers has been 
similar to CIQ.  While some store managers at smaller shops 
believe that there is a nefarious reason to the abrupt shortage, 
most attribute the bare shelves to supply and demand.  Local 
retailers indicate that they just did not anticipate such a 
steep increase in the demand for imported milk.  Jina Jiang, 
Import Product Manager from Carrefour, said that more stock is 
on the way and that in the next week or so Carrefour would have 
a more stable supply.  Sherry Xie, a manager from the 
Chinese-owned Shanghai specialty food retailer City Shop also 
agreed that exporters could not meet the increasing demand; 
however, she believed that the import inspection of dairy 
products for melamine has slowed the release of imports onto the 
Chinese market.  Generally, the distribution system cannot 
respond too quickly to an import shortage because demand for 
dairy product worldwide is up and major exporting countries are 
far from China. 
 
COMMENT 
------- 
 
¶5.  (SBU) Since other cities (such as Beijing and Guangzhou) 
reportedly have imported milk still available in albeit limited, 
but still sufficient quantities, it is interesting that this 
shortage appears to be primarily a Shanghai problem.  Shanghai 
is a different market than other Chinese cities; it has a 
sizeable expatriate population (approximately 134,000 registered 
 
SHANGHAI 00000498  002 OF 002 
 
 
foreigners as of 2007) and a local market historically more open 
to Western ideas and products.  With expatriates only accounting 
for roughly 0.7 percent of Shanghai's 18.58 million official 
residents, the run on milk suggests that locals may be 
purchasing the imported products not just for affluence, but due 
to a lack of confidence in food safety authorities who have 
claimed that domestic milk is now perfectly safe for consumption. 
 
¶6.  (SBU) While some believe that the milk shortage is a result 
of protectionist measures, we have seen no indication that this 
is anything more than a supply and demand problem brought on by 
continued distrust of local milk.  We will continue to monitor 
the situation to see if the stock of imported milk becomes more 
stable in the coming weeks. 
CAMP