Chinese milk production will reach 67 billion pounds in 2011, up 5 percent from 2010. This is among the forecasts of a USDA Foreign Ag Service GAIN report (Global Agricultural Information Network).

China's imports of whole milk powder will likely exceed 441,000 tons in 2011, more than double the level in 2009, due to rising sales of a wide variety of dairy foods. Nonfat milk powder imports will also continue to grow, fueled by particularly strong demand from infant formula manufacturers. Through September of this year, U.S. dairy exports to China were valued at $166.5 million, a 77 percent rise over 2009.

Local producers are slowly rebuilding the Chinese dairy herd following the melamine crisis, when 15 percent of China's dairy cows were taken out of production due to weak demand. While Chinese milk production is on the rise, growth is being hindered this year by additional detections of melamine in Chinese milk powder, animal disease, and comparatively low animal productivity.

Encouraged by higher milk prices in China (up one-third from September 2009 to about $20 per hundredweight), operators are rapidly increasing imports of dairy cows, which are expected to approach 90,000 head in 2010, more than double the level the year before.

Meanwhile, in addition to consumer safety concerns, producers are also being challenged by higher incidences of animal disease, which may hamper production growth into 2011. By the end of August 2010, nine provinces had officially reported foot-and-mouth-disease (FMD) outbreaks, and there were reports of mass slaughter in several provinces. Some cases involved the Chinese military to ensure herd elimination.

On June 8, 2010, various agencies of the Chinese government, including the Ministry of Agriculture (MOA), issued the "China National Dairy Development Plan (2009-2013)". A basic target is that by 2013 China's national dairy production will reach 106 billion pounds, nearly double current estimated output. This will be accomplished by raising cow inventory to 15 million head, boosting yield per cow to 12,500 pounds, and bumping up the number of dairy farms with herd size at and above 100 head from 25 percent to 35 percent of China's total dairy operations.

The primary publicly notified subsidy to encourage higher production is China's dairy cow genetic improvement support fund. It is expected the amount for the program in 2011 will be at least the funding level in 2010 of $38.8 million to encourage higher milk supplies. China's dairy cow production subsidy started in 2005 with $223,881 covering 675,000 head of Holstein cows in 15 counties in four major dairy-producing provinces, including Heilongjiang, Inner Mongolia, Hebei, and Shanxi.

Each productive cow was subsidized with $3 for two straws of frozen semen from MOA-identified high-quality Holstein bulls. All sizes of operations benefit from this program. The subsidy in 2006 was expanded to cover 178 counties in 22 provinces with a total subsidy of $14.93 million. In 2008, the subsidy was raised to $35.82 million mostly for Holstein cows. In 2009, the subsidy was pushed up to $38.8 million to cover all Holstein cows and additionally included Jersey cows and Sanhe cows. Each productive Holstein or Jersey cow is now subsidized with $4.50 for two straws of frozen semen, while the rest are subsidized with $3 for two straws of frozen semen from MOA identified high-quality dairy bulls.