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R 012356Z MAR 06
FM AMCONSUL GUANGZHOU
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UNCLAS SECTION 01 OF 02 GUANGZHOU 005778 
 
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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