Sanyuan to raise prices of milk products

Beijing Sanyuan Foods Co will raise the prices of its products in December, with the price of a bottle of fresh milk delivered to homes to increase by 0.5 yuan ($0.08), Beijing Times newspaper reported Thursday.

In addition, the price of a 234 milliliters pack of fresh milk sold in supermarkets will rise by 0.2 yuan, the report said.

Sanyuan announced on its website on November 15 that the prices of its products will increase by an average of 8 percent from next month due to rising costs.

The price of raw milk has increased 50 percent year-on-year, the company said.

Some experts predicted other milk producers will also follow suit.

Considering that the price of raw materials continues to rise, Mengniu Dairy Co may increase its prices when it is necessary, Mengniu told the Global Times Thursday, but refused to give more details.

The price hike will be San-yuan's second this year, after it raised its prices 5 percent on January 1.

The price of raw milk has gone up due to limited supplies, and the fundamental reason is that small and medium-sized dairy farmers have quickly retreated from the business in recent years, Song Liang, an independent dairy industry analyst, told the Global Times Thursday.

Small and medium-sized dairy farmers are those who have no more than 200 cows, Song said, noting they are a weak group in the dairy business.

Compared with dairy farms, independent dairy farmers get lower prices for their milk, Chen Lianfang, an analyst with Beijing Orient Agribusiness Consultant Ltd, told the Global Times Thursday.

As a result, some of them have given up their dairy business and sold their cows because beef prices surged this year, said Chen.

For these farmers, raising cows and selling raw milk only brings low profits, Song said. "They can earn more money by being a migrant worker in the cities than by staying in the countryside."

Many of them have given up on the dairy industry, but the need for dairy products is rising in China, leading to the price rise of raw materials, he said.

The raw milk supply shortage was exacerbated by the high temperatures this summer and the outbreak of type A foot-and-mouth disease in some regions this year, according to him.

High temperatures affect cows since they are sensitive to temperature and cannot produce milk when it is too hot or cold.

The situation got more serious in the winter because many cows in North China stopped producing milk in cold weather, Song said, noting 80 percent of raw milk came from North China.

The food-safety scare concerning New Zealand dairy producer Fonterra in August reduced China's imports of dairy raw materials, intensifying the raw material shortage, Chen said.

However Song felt that the slight fluctuating of imports caused almost no impact on domestic raw material price.

"The imports have recovered quickly after the scandal, and imported powders such as whey protein powder are used for reconstituted milk, but the recent price rises have been for liquid milk products that are processed from raw milk rather than reconstituted milk," he noted.

The raw milk shortage situation may ease in the second quarter next year because some dairy farms created in 2010 and 2011 will be put into use in 2014, he predicted.