Over the past two decades, thanks to the vigorous development and popularization, great achievements have been scored in the Chinese diary industry. The per capita milk increased to 13.4 kilograms in 2003 from 4.4 kilograms in 1990, the output of diary products increased to 7.238 million tons in 2003 from 115.3 tons in 1997, among which the annual growth rate of liquid milk stood at 99% during the six years.
However, in the current diary market, competition becomes ever more intense and the wars of price break out one after another. According to Song Kungang, Chairman of China Dairy Industry Association, this has indicated such a phenomenon that the consumption market tends to be saturated in large cities. The reason behind this is that the output increased much more rapidly than the consumption market. According to Nan Qingxian, professor of China Agricultural University, the Chinese diary industry has lagged far behind the developed countries in terms of total output, producing level of cows, per capita volume, possessing rate of raw fresh milk and products structure.
The diary structure is stereotyped which contains mainly liquid milk, yoghurt and milk powder. Especially, the newly established diary processing factories still stay at the level of pasteurized milk, UHT milk and milk powder. Moreover, lack of new conception and idea in the development of products has led to the intense competition and frequent price wars between the liquid market and milk powder market.
In the four Municipalities directly under the Central Government last year, the diary consumption volume decreased more or less except Chongqing where the consumption volume increased slightly. In Tianjin it dropped by the largest margin from 28.80 kilograms in 2003 to 27.21 kilograms in 2004, down by 5.53%. In the milk production provinces in the North, Shanxi, Shandong and Gansu increased slightly with the average rate of 5%-6%. Meanwhile, Xinjiang, Qinhai and Inner Mongolia dropped considerably. From the changes of residential consumption in cities and towns, it can be seen that the Chinese diary industry has entered a period of slow stability.
Undoubtedly, the potential of diary industry is tremendous. However, how to explore the potential market?How to improve the per capita consumption volume?According to Nan Qingxian, it is a strategic goal to make products on diary market diversified.
Specify products development to meet people’s nutritious demand
The growth of diary industry in the future lies in the upgrading of product structure. According to Yu Xiaodong, director of PNDC, though the food industry in China has not attached enough importance to nutrition of products, the potential of food industry will be boundless once full attention is given to nutrition. The diary industry is no exception. If diary industry development is guided by the nutrition conception, great potential and profits will be made.
According to Doctor Chai Weizhong from PNDC, the diary industry should shoulder the responsibility of improving the people’s nutrition level. The Fourth China National Nutrition Survey shows that Chinese residents are short of vitamins and minerals widely and the imbalance of nutrition tends to speed up. As the important component of people’s food structure, the development of diary should be combined with the need of improving people’s nutrition level.
According to Liu Yan, senior business manager from Tetra Pak in China, the consumption of diary product should be treated as a measure of improving people’s nutrition conditions. The diary industry should be viewed and planned from the perspective of balancing Chinese people’s food structure instead of merely improving the per capita volume of diary products.

Several R&D Strategies demonstrating nutrition conception of diary industry
R&D Strategy 1: Fortify diary products
According to some reports, consumers have changed their views on nutrition enhancer in the recent years. 68% of the consumers strongly agree that vitamins and minerals should be added in the food and 9 consumers in 10 hold that nutrition enhancer such as vitamins and minerals are of great importance to staying healthy. This understanding has vigorously put forward the development of nutrient fortified food. Diary products are excellent food carrier of fortifying nutrition. In adding nutrition enhancers and functional food material, more fortified milk products could be developed to meet more needs of people. For example, to those people who choose skimmed milk, the adding of essential fatty acid and Vitamin A, Vitamin D and Vitamin E can make up the loss of milk fat. And to those common vegetarians, the fortified trace elements such as Fe and Zn are beneficial to the improvement of their food nutrition balance.
The development of yoghurt starts from the improvement of tastes and health conception. The integration with fruits, grains, vegetables, vitamins and minerals, together with the appropriate application of requested functional additive have made yoghurt colorful. According to Gao Songbai, honored director of technology center of Inner Mongolia Yili Industrial Group Co., Ltd., the concept of “good tastes go hands in hands with health” still remains the foundation of the development of yoghurt, and the demand for the nutrient fortified yoghurt will increased obviously.
However, experts point out that though some diary products have been put into market which contain minerals, oligosaccharide, DHA and dietary fiber, the varieties of nutrient fortified diary products are still in short. Moreover, the importance of nutrition and the objects are not definite enough. For instance, the view that the milk contains enough calcium and the high-calcium milk is exaggerated by the producing companies is just a misunderstanding. According to Doctor Guo Benheng, deputy director general of Bright Diary, the reason that fortified calcium products are not so common is that the basic consumption volume of diary products in the developed countries is very high, about 300 kilograms per year. However, the per capita consumption of milk stands at 10 kilograms per year. And nutrition survey shows that the take-in calcium of Chinese residents is far from enough. Therefore, in the prerequisite of insufficient take-in of calcium, the fortifying of calcium in the diary products is reasonable as well as a workable measure of supplementing calcium.
R&D Strategy 2: Functional diary products
Milk is a traditional and well-recognized nutritious food, nonetheless, its value is far from that. People’s understanding toward this is constantly deepening now.
In addition to some basic nutritious elements, milk also contains some precious functional factor. Peptide is just a good example.The protein of milk is mainly composed of two kinds: 20% of whey protein and 80% of casein. According to the findings of the University of Minnesota, hydrolysis whey protein can obviously bring down the blood pressure. And it is speculated that the hydrolysis whey protein may bring down the blood pressure through changing the activity of ACE. As early as 1950s, a Japanese diary company worked out the first generation of the mixture of casein and amino acid to resist the allergic milk. It sold well in the past 40 years.Casein Phosphopeptides drawn from milk casein is beneficial to the assimilation of Ca and Fe in the body. When the functional element in the milk is picked out and added to the milk again, the functional diary products are successfully made with more nutritious and healthy function. Moreover, compared with the medical healthy food in pills, capsules and oral liquid, the functional diary products are more popular both in taste and outward appearance. With the apparent advantages, functional diary products has drawn the attention of global diary industry and enjoyed a rapid development.
R&D Strategy 3: Cheese
As a main consumer diary product, cheese enjoys the reputation of “king of diaries”.Cheese is made through the technique of fermentation, enzyme hydrolysis and concentration; it boasts rich nutrition with over 900 kinds. The protein of cheese is 5-8 times higher than that of fresh milk and calcium 3-4 times higher. Besides high assimilation rate of the body, it is an ideal food to supplement calcium. Moreover, with rich vitamins, cheese is beneficial for people to resist cancer, bring down blood pressure and raise the immunity function level of the body. Fermentation is essential to the production of cheese, therefore, lactose intolerance and allergic could be avoided to a large extent. According to some introductions, cheese is the product which consumes the largest amount of raw milk among the diary products. Generally speaking, 10 kilograms raw milk has to be consumed to produce 1 kilogram cheese. Therefore, the development of cheese industry is of great significance to the development of the whole diary chain.
According to Nan Qingxian, cheese is a new highlight in the development of Chinese diary industry. In his view, the increase of diary take-in should not be realized through mere milk drinking. Cheese is the main product of diary industry in the developed countries. The high per capita diary consumption is related with the high cheese consumption in the developed countries. In the per capita 300 kilograms diary products in the developed countries, cheese at least accounts for half. Therefore, if conditions permit, the eating of cheese should be advocated when half kilogram milk each day is guaranteed.
The output and consumption of cheese can, to some extent, demonstrate the development level of economic level and development level of diary industry. In 2003, the per capita consumption of cheese in Greece ranked the first in the world, 27.5 kilograms for per capita consumption, while 25.8 kilograms in France and 21 kilograms or so in German and Italy. When some people go abroad, they often see some foreign children eating cheese just like the Chinese children eating candies. The pity is that the nutritious value of “king of diaries” has not gained the recognition of many Chinese consumers. In the industry chain of Chinese diary industry, the production of cheese just made a start and the market is just in its infancy. However, in the recent years, cheese becomes more and more popular among the Chinese consumers, with import volume increasing considerable. According to some statistics, the import of cheese has increased by 70% in 2003. From January to November, the import risen by 62.8%. It is said that the cheese from Bright Diary has doubled each year in the recent years.
According to some professionals, the gap of pure milk and yoghurt has been shortened considerably between Chinese products and their foreign counterparts in a few years. However, the wide gap still remains in the field of cheese. It is just the same reason that the potential market of cheese will be tremendous in the future. It is known that the production of cheese will be strongly supported by national policy. The precious opportunity of developing cheese production has become ripe basically.
R&D Strategy 4:  Low lactose diary products
Many Chinese people do not drink milk because they are suffered by lactose intolerance. According to statistics, lactose intolerance exists in 90% of adults in Asia. In China, according to some surveys by experts, mal-absorption syndrome occurs as high as 86.7% after drinking diary products among adults, intolerance syndrome accounts for 90% in mal-absorption. Though the rate among juveniles and infants decreases to some extent, it accounts for over 25%. According to Song Kungang, the best way to solve the problem of mal-absorption is to develop low lactose diary products accordingly.
In the process of low lactose diary products, the lactose in the diary products can be hydrolyzed by lactase to decrease the amount of lactose to 65% or so. The patient suffering lactose intolerance will not be troubled by the intolerance effects basically. Low lactose diary products have expanded the consumers of diary products and make the slogan of “lifelong milk drinking” applicable to more people.
R&D Strategy 5: Compound nutritious milk
 According to Yan Weimin, deputy director of light textile division, Department of Industryo of National Development and Reform Commission, the compound soybean yoghurt developed by Chongqing Medical University has already gains 4 patents. Soybean and milk has their own advantages. The compound soybean yoghurt, made of 80% soybeans and 20% milk after fermentation, is more nutritious than milk after fermentation, thus best demonstrating the conception of compound nutritious milk.
R&D Strategy 6: poverty relief through nutritious diary products 
It is another issue of great importance to popularize the diary products consumption in central and west region and rural areas. In the poverty-stricken areas, the consumption of diary products is limited by the economic income there. If the diary products and corns could be combined to work out low cost, “nutritious diary products to relieve poverty”, then the nutrition level of local residents could be improved and consumption scale will be expanded. According to Jiang Jianping, professor from Chinese Academy of Agricultural Sciences, in Nigeria, such a “nutritious diary products to relieve poverty” which adds milk to corn powder has already existed.