China's Milk Consumption to Fall in 2009 on Taint: Chart of Day

China's milk consumption, which rose 9.3 percent last year, may fall next year and will be squeezed at least until 2010 on concerns over dairy products tainted with chemicals, UBS AG said.

"Following the pattern of consumer behavior after other food safety cases in China and elsewhere in Asia, we believe liquid milk consumption may recover in 2010," UBS said in a report. "Parents may choose foreign-produced milk powder as a replacement for domestic products in China's large cities."

About 3 percent of milk consumption in China is from powdered products, according to data compiled by Bloomberg.

The CHART OF THE DAY compares China's powdered milk imports and exports since 1990. Data for 2008 are based on U.S. Department of Agriculture forecasts made in the fourth quarter of last year. Actual trade will boost the proportion of imports because of the "milk scandal," Lei Chen, Beijing-based lead analyst for the UBS report, said by telephone.

The lower graph compares total milk consumption in the U.S. and China. The U.S., with a population of about 304 million, uses more than twice the amount as China, with 1.33 billion people. The USDA forecasts U.S. demand to rise 2.1 percent this year and 0.5 percent in 2009. The 8.3 percent growth estimate for China in 2008 won't be reached, as thirst for milk "will be destroyed" for the rest of this year and will decline in 2009, Chen said.

Nestle SA, based in Vevey, Switzerland, and Groupe Danone SA, headquartered in Paris, will see a rise in milk-powder orders, though gains will be "small" relative to worldwide sales, the report said. The country's two biggest milk producers, China Mengniu Dairy Co., and Inner Mongolia Yili Industrial Group Co., "will be hit hard, and will need time to rebuild," UBS said.

Chemical contamination in dairy products has been linked to the deaths of four children and sickened more than 53,000 people in China, according to the World Health Organization.

Source: Bloomberg