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Price of milk in the United States has become just about as exorbitant as gasoline. One reason: the vast new markets of thirsty milk drinkers in developing countries like China.

In the latest installment in our food series, NPR's Louisa Lim reports from Shanghai.

LOUISA LIM: I have a dream, China's premier Wen Jiabao once said. But his dream wasn't his civil rights for all or racial harmony. It was of a future where each Chinese child would have enough milk to drink - half a liter of milk per child per day to be exact. That's creating a gigantic new market of milk drinkers coming to shop at supermarkets like this one.

And they're milk drinkers who are now dealing with higher milk prices.

Unidentified Man: (Chinese spoken)

LIM: It's up at least 50 percent since last year's (unintelligible).

Unidentified Woman: (Chinese spoken) It's so expensive (unintelligible). The government should subsidize milk, she says, otherwise we'll just have to cut back.

The government has been trying to listen to shoppers' concerns. Since January, Beijing's put curbs on milk prices, but even so, it's given permission for another 10 percent price hike next week. Average milk consumption is zooming up in China. In just eight years it's almost tripled. That's driven by new wealth and new dining habits among China's burgeoning middle class as nutritionist Cai Meiqing explains.

Ms. CAI MEIQING (Nutritionist): (Through translator) Some people think that drinking milk, eating bread is the sign of a westernized modern lifestyle. But it's also more convenient than making rice porridge, which takes ages.

LIM: At the third annual dairy cow conference in Shanghai, the mood is one of optimism. Stores selling milking technology vied for space with the publishers of Holstein Cow magazine, while novice dairy farmers put up posters seeking herds of thousands of cows.

The government offers big incentives to dairy farmers as China needs more milk to feed its huge, thirsty populace. It's evidently a flourishing sector, but Edward Zhang, who sells dairy equipment for the Swedish company DeLaval, says the price rises aren't necessarily translating into more money for farmers.

Mr. EDWARD ZHANG: That's - many come from (unintelligible) price increase around China, generally. The reason is there are resource shortages, and the second (unintelligible) of the price increase around the world.

LIM: Global feed prices have been pushed up by the demands of biofuel. And even though fresh milk isn't easily exported, milk powder is. An increased demand for that is also pushing up the price of dairy products.

Mr. MERRITT CLUFF (Economist): Dairy prices are beyond probably anybody's imagination thought of a year ago even. Probably, nobody can explain why they have reached the heights they have reached.

LIM: Merritt Cluff is an economist at the Food and Agricultural Organization in Rome. Trying to explain the inexplicable, he says one important factor has been a change in European Union policy, drastically cutting subsidies to farmers.

Mr. CLUFF: The second biggest factor certainly would be China and southeast Asia, where income-led growth has basically changed the dairy sector around globally.

LIM: That and a drought in major exporters, Australia and New Zealand, have led to supply problems on the international markets as apocalyptic headlines make clear. Japan is suffering from a butter crisis, Finnish cheesemakers are cutting production; German consumers are even calling Chinese the "milk snatchers," as China is now the world's biggest importer of milk products. But the vice president of China's Milk Association, Wei Kejia, says it's being unfairly victimized.

Mr. WEI KEJIA (Vice President, China's Milk Association: (Through translator) I don't accept this way of thinking. I don't think we in China are influencing the supply of dairy products in other countries. We're not importing that much.

(Soundbite of music)

LIM: As Chinese dairy companies expand, their influence is being shown in unexpected ways. This commercial was for "Supergirl," a talent show watched by a 20 million strong audience who voted for their favorites. Today it's probably the largest ever democratic voting exercise in China. Its sponsor: Mengniu Dairy Company, whose sales went up five-fold. The company ended up changing Chinese popular culture and converting a whole new generation to milk product along the way.

Louisa Lim, NPR News, Shanghai.

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