Dairy exporters see 'tremendous' prospects in China

A product demonstrator at a grocery store in Shanghai assists Stan Andre, middle, chief executive officer of the California Milk Advisory Board, and David Freedheim, the board's sales consultant, in promoting California dairy products with samples of California cheese for shoppers.

Even before the ongoing contaminated-milk scandal left Chinese consumers clamoring for dairy products not made in China, the Asian nation was considered an emerging market for California's ever-growing supply of milk.

Now, delegates returning from a trade mission to China say those prospects are very real and they are encouraged by what they learned from the 10-day trip.

Organized by the California Milk Advisory Board, the November trade mission was designed to promote and explore new export avenues for the state's dairy products, said David Freedheim, a sales consultant for the board. The trip was also designed to give participants, who included dairy producers and manufacturers, a greater understanding of the market they hope to penetrate, he added.

"We just recognized that there was a tremendous opportunity there," Freedheim said. "I think the delegation gained an enormous appreciation of the potential value of the market in China."

While China's current food safety concerns underpinned the timeliness of the trade mission, Freedheim said the trip was planned many months before China's problems with melamine-tainted milk. He said the purpose of the trade mission was to help forge a partnership with China so California can sell safe and reliable dairy products to the protein-starved nation.

With its 1.3 billion population and a burgeoning, affluent middle class looking to buy higher-quality foods, China has the potential to be a major export market for California, a state that has seen record milk production year after year.

But cracking open that market will not happen overnight, said Butch Dias Jr., a Tulare County dairy farmer and Milk Advisory Board chairman who was part of the delegation.

Although China has not been a major consumer of dairy products in the past and its milk consumption is still miniscule compared to Western nations', Dias said there is a growing consciousness among the Chinese that a diet rich in protein and dairy products equals health and nutrition.

China's younger generation, which is increasingly influenced by Western culture, is driving the change in the nation's diet and lifestyle and will be key to expanding China's dairy market, he noted.

"As that population grows, their appetite for Western products are going to grow, and their appetite for milk and cheese and butter will grow," Dias said. "So I think we have some real opportunities there."

Most of the delegation had never been to China, Freedheim said, so the trip offered great insight into its food industry and the eating habits of its consumers. Receptions for retail and food-service customers and distributors of perishable foods helped to facilitate business deals that could initiate and expand additional trade options, he added.

Meetings with Chinese government officials also exposed the delegation to the interest China has in partnering with California and the technical advantages that are now in place throughout the country, Freedheim said.

The trade mission included stops in three major cities: Beijing, Shanghai and Hohhot in Inner Mongolia, where the delegation visited two of China's major dairy processing and distribution companies, Mengniu and Yili, both of which were implicated in the melamine scandal.

Michael Marsh, chief executive officer of Western United Dairymen, described the processing plants as "extraordinary," "state of the art" and "as sophisticated as anything I've seen in the United States." Despite the impressive nature of the facilities, however, Marsh noted that food safety issues loomed large on everyone's minds.

"The Chinese consumers and buyers of dairy products, as well as the media that we met with, were almost overjoyed that we were there," he said. "They've got a lot of concerns about food safety, and because of the California dairy industry's reputation for high quality, they were just thrilled that we were there."

The delegation also toured grocery stores and other retail markets, which provided a glimpse of the limited dairy product offerings that shoppers could buy in China. What they typically saw on store shelves were ultra-high temperature milk or powdered milk, because many Chinese households have limited or no refrigeration, Dias said.

Cheese is also a relatively new concept for Chinese consumers, many of whom don't cook with ovens and don't understand how to use cheese, said John Fiscalini, a dairy producer in Stanislaus County who operates Fiscalini Farms and Fiscalini Cheese Co.

"Cheese is really not something that has been a regular part of their diet, so we have a bit of an education process," he said. "It might take a few years, but eventually I think the Chinese population will find a huge value in eating cheese."

Because he sells an upscale product, Fiscalini said he was initially concerned that his cheeses would not fit well with the once-impoverished communist country that he visited in the 1980s. But the China he saw on the trade mission was a thriving nation with commerce on every corner.

Until cheese becomes more popular in China, Fiscalini said his export opportunities would likely be centered around food service and high-end hotels and stores that cater to wealthy foreigners living in China and expatriates who consume cheese.

Mark Rudolph, chief executive officer of Pacific Cheese in Alameda County, said he met numerous buyers during the trip who cater to restaurants, hotels, airlines and cruise ships and are looking for bulk cheese products they couldn't find domestically. He said he plans to follow up on some of those leads.

"The opportunity is in food service," he said. "I don't think there's much opportunity in retail. It's a small market because it's really focused on Westerners living in China."

Peter Gallo, partner of Merced-based Joseph Gallo Farms, which had its cheeses featured at the 2008 Olympics in Beijing, said he plans to concentrate on China's big cities.

"I think you need to start in places such as Shanghai, Hong Kong and Beijing," he said. "Not only is there a lot of dairy consumption in these urbanized centers, but there's a lot of Western influences."

Gallo, who had not been to China before, described his experience with the trade mission as "eye-opening" but said it is too early to know how productive it was. His company is already a huge exporter, with 20 percent in international sales, and Gallo said he expects he will be selling more cheese to China in the future.

"We recognize now more than ever it's really a necessity to explore world markets like China and other countries," he said.

Steve Gulley, who's in charge of international sales for Fresno-based DairyAmerica Inc., which markets dry milk powder for nine U.S. dairy cooperatives, said while the trade mission was billed as a partnership-building effort, he suspects that some of China's dairy companies may have different expectations from California.

"We want them to just buy our products and they want us to teach them how to make products like we make," he said.

Companies like Mengniu and Yili, which DairyAmerica started doing business with earlier this year, are not interested in marketing California's dairy products in their country, he said. What they want is to buy ingredients from California and make more of their own dairy products, he added.

Fiscalini said the idea is not to take over China's dairy operations but to supplement their need with California dairy products.

"We don't want to take the Chinese dairy industry out of the picture," he said. "They need to fix their problem and they need to sell their own milk to their own people."

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.