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### Viewing cable 06GUANGZHOU5778, Got Milk? Two Guangxi Dairy Farms Invest in Future

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06GUANGZHOU5778 | 2006-03-01 23:56 | 2011-08-23 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Guangzhou

`

    VZCZCXRO4354
    RR RUEHCHI RUEHCN RUEHDT RUEHHM RUEHNH
    DE RUEHGZ #5778/01 0602356
    ZNR UUUUU ZZH
    R 012356Z MAR 06
    FM AMCONSUL GUANGZHOU
    TO RUEHC/SECSTATE WASHDC 9317
    INFO RUEHOO/CHINA POSTS COLLECTIVE
    RUCNASE/ASEAN MEMBER COLLECTIVE
    RUCPDOC/USDOC WASHDC
    RUEHRC/USDA FAS WASHDC 0888
    RUEAIIA/CIA WASHDC
    RUEKJCS/DIA WASHDC
    RHHMUNA/HQ USPACOM HONOLULU HI

` `

    UNCLAS SECTION 01 OF 02 GUANGZHOU 005778

    SIPDIS

    SENSITIVE
    SIPDIS

    STATE ALSO PASS USTR
    USDOC FOR 4410/MAC/MCQUEEN
    PACOM FOR FPA

    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

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