Dutch dairy group Friesland Coberco is withdrawing from the Chinese market.

The company had terminated the production, marketing and sale of milk and yogurt drinks in China, and transferred its activities in the domestic market to its local partner Tianjin Sino-Finnish Dairy Research and Training Center yesterday.

The withdrawal is attributed to the company's poor operations during the past eight years.

The company said that it was exiting the Chinese market because of the deteriorating conditions on the dairy market.

Friesland Coberco entered China in 1996 by setting up Friesland Tianjin Dairy Foods with Tianjin Sino-Finnish Dairy, and then began to produce and market its Dutch Lady milk in China.

However, "the company did not make profits in the past eight years, though it ranked third in South China's milk market," said Cai Jing, national marketing manager of Friesland Tianjin Dairy Foods.

She said that as more and more investors swarmed into the sector in recent years, overcapacity has resulted in China's dairy market.

Overproduction and saturated markets in large cities had continually lowered profit margins in the sector, Cai said.

"We decided to leave the market as there is no prospect of real change in the short term," she said.

Friesland Coberbo is not the first foreign dairy maker to meet setbacks in China. Other food giants such as Danone, Kraft and Parmalat had similar experiences in the country's milk and yogurt market.

Chen Yu, an industry expert from China Dairy Market Consultancy, attributed the failure of foreign dairy firms mainly to limited raw milk resources and high operating costs.

However, it is just a strategic retreat. Foreign producers would not give up hope of a share in China's booming milk market, Chen said.

Annual average consumption of dairy products in China is 9.7 kilograms per person, compared with 200 kilograms in Europe and a world average of 100 kilograms.

These figures indicate plenty of room for growth in the consumption of dairy products in China.

Cai from Friesland Tianjin said the huge Chinese market is still attractive to her company and would not write off the market.

"We will watch the market closely and re-invest when we feel it is growing healthy," Cai said.

Friesland had licensed Sino-Finnish to use its Dutch Lady brand and it also owns a minority share in Tianjin Dutch Lady Dairy Foods, a new firm set up by Sino-Finnish after taking over Friesland Tianjin.

Meanwhile, the company will continue to sell its imported Friso infant foods, Dutch Lady milk powder and Dutch Lady Calcimexin the Chinese market through its other subsidiary Hong Kong Friesland Foods Ltd.

(China Daily November 25, 2004)