China has not historically been a nation of cheese lovers, but things can change.

Cheese consumption has been growing rapidly across the country in recent years, and the market holds enormous potential.

Domestic manufacturers of dairy products need to grab hold of a market that currently relies heavily on imports.

"It is time for the big Chinese dairy producers to develop value added cheese products," says Chen Yu, an industry analyst at Beijing Orient Agri Business Consultancy.

Domestic companies need to launch diversified products to exploit new profit resources, because their profit margins are continuing to fall. Growing cheese consumption represents a perfect opportunity, China consumed about 10,000 tons cheese in 2004, 7,250 tons of which was imported. Import volume was only 2,533 tons in 2002 and 4,614 tons in 2003, according to statistics from the China Dairy Industry Association.

Total volume is still small, but growth is highest for major imported dairy products including milk powder, whey and lactose.

The rapid spread of Western fast food restaurants like McDonald's, KFC and Pizza Hut are giving increasingly affluent Chinese consumers an unprecedented taste for cheese.

"China's growing dairy consumption is impressive," says Thomas M. Suber, president of the US Dairy Export Council. He says that he never imagined that Chinese would be willing to try many dairy products, including cheese, butter, fresh milk and yogurt.

Cheese consumption's market potential has been proven in neighbouring Japan, where eating habits are similar to China. Per capita cheese consumption in Japan has grown to a current 2,560 grams, up from only 400 grams in the 1970s.

Some Chinese dairy producers have seen the potential and have invested in the sector. Beijing Sanyuan Food launched its "Beijing Cheese" line after it took over Kraft's dairy business and re-invested in cheese production in 2003. It can produce 100 tons of cheese a year.

Other companies like Sanlu, Wan Da Shan and Yili have also tried to develop cheese products.

The business remains a very small part of their total production, however, compared to liquid milk and milk powder. Only a few, such as Bongrain and Shanghai Bright Dairy, produce on a relatively large scale.

"Dairies should jump on the business opportunities offered by the 2008 Olympic Games and the 2010 World Expo," says Chen.

The Beijing Organizing Committee of the Olympic Games estimates 200,000 athletes, officials and reporters and about 50,000 overseas tourists will come to China in 2008.

Many will be from Western countries, which could boost demand for cheese.

Chen says a multi-million yuan cheese production project is being designed. It recently started construction in Sichuan Province.

Industry experts are warning dairy companies not to blindly invest in the sector, however, in case stiff competition rears its head, as in the milk sector.

(China Daily 10/17/2005 page6)