(Yicai) Dec. 4 -- A surge in Chinese consumers' demand for fresh milk products is driving regional dairy companies to add capacity despite the industry downturn, according to industry insiders.

Across China, several companies, including Adopt a Cow and Weigang Dairy, have recently reported increases in dairy cattle numbers, even though the demand for big producers' core product, ultra-high-temperature milk, is decreasing, Yicai learned.

Although UHT milk sales have declined this year, fresh milk sales -- the core business of regional dairy companies -- continue to grow, Song Liang, an independent dairy analyst, told Yicai.

Some consumers are switching to pasteurized milk, Song said. Moreover, dairy companies have recently launched new premium products, which have further stimulated demand for refrigerated milk without significantly lowering prices amid the sector-wide downturn, Song added.

New Farms

Firms are adding capacity, especially in eastern China. For example, direct-to-consumer dairy firm Adopt a Cow recently began operations at a large dairy farm with 20,000 cows in Jilin province, alongside starting another new farm with 25,000 cows earlier this year in the same northeastern province.

Last month, Nanjing-based Weigang opened a factory with an annual output of 300,000 tons of dairy products in Rizhao, Shandong province. The products will target the regional market within a 300-kilometer radius.

Eastern China's Shandong has a large population base, and the location of Rizhao is strategic, which creates room for dairy consumption, Weigang explained to Yicai.

Urumqi-based Tianrun Dairy also announced the completion of its new factory in Shandong last month. Before that, Guangzhou-based Yantang Dairy said it would invest in a 600-ton-per-day dairy processing plant in Guangdong province.

However, the expansion of new players Tianrun and Weigang is expected to accelerate regional competition. Shandong province already has five milk brands, including local producer Jiabao Dairy and industry giant Yili Group.

Yili said during its third-quarter performance meeting that although the total sales of liquid milk products dropped this year, the consumption of fresh milk kept rising, and such operating income jumped by double digits.

Editors: Tang Shihua, Emmi Laine