Mengniu, one of China's top two milk suppliers, says it has seen sales of its Telunsu brand milk in Shanghai increase by 20 per cent each month, despite its price at more than double that of a regular milk.
Other dairies have followed Mengniu into this category. Yili offers the Jindian brand while Bright dairy markets Youbei. Youbei sells at RMB10.8 while the firm's ordinary milk sells at only RMB4.95.
The milks are marketed as higher quality products, with claims for a minimum protein content of 3.1g and 3.3g fat. But the prices may be forced even higher if sales keep rising. Although there are now more than 10 million milk cows in china, less than a third are able to produce the high-end milk.
Ms Xu, a sales manager at Mengniu told the Shanghai Business newspaper that the firm increased the price of Telunsu by 16 per cent last month in anticipation of strong demand during the winter.
"Winter is the prime time for milk selling, so the market demand is expected to grow bigger. However, because the high quality raw material we have is rather limited, it is difficult for us to satisfy the whole market at the original price,"she said.
Bo Guanhui, an analyst at Citic Securities told AP-Foodtechnology.com that the high margins on such milks would help dairies absorb higher raw material costs.
"The cost of dairy production has risen by 15 per cent but the profit of high-end milk can reach 10 per cent, which is why so many companies want to invest in it. It is predictable that the price of dairy products will keep rising so the high-end milk will certainly become a significant part of some big companies' product range."
The market for high-end milk is already well-established in Taiwan, typically a wealthier marketplace than mainland China.
According to statistics quoted by Shanghai Business, Taiwan sold 16 million litres of high-end milk in 1999 but this had grown to 90 million litres in 2004, just a quarter less than regular milk sales.
Companies in China, which tend to look to Taiwan for innovation ideas, will be aiming for a similar trend.
Additional reporting by Pan Yan.
