By He Shan

The Chinese dairy market has shown signs of resurgence as the repercussions of the tainted milk scandal, which stirred widespread outrage across China seven months ago, begin to fade.

The industry has been hit hard over the last seven months, but the major companies say they are beginning to make up lost ground.

"The market has largely recovered," said Wang Dingmian, deputy director of the Dairy Association of China. "By the second half of this year, 90 percent of the market will be restored."

A report from Haitong Securities, drawing on upbeat economic data, said that the effect of the melamine scandal is dissipating.

In the first two months of this year, dairy product output were up 9.1 percent and revenues were up 2.9 percent from a year earlier, offering a glimpse of daylight for the industry.

Wang said Mengniu and Yili, the two largest dairy producers, would be able to restore 85 to 90 percent of their market share by the end of 2009.

Before the scandal, China's dairy industry had been booming for more than a decade, boosted by a government initiative to get Chinese to drink more milk.

Since the melamine scandal swept the market last September, Bright Dairy, the third largest producer in China, has outperformed its rivals Mengniu and Yili, since it is considered to be least involved in wrongdoing.

Bright reported a 286 million yuan (US$42 million) loss in 2008, but it is expected to be the first of the majors to return to profitability.

Although production has increased, Mengniu, the market leader, is still reeling from a string of problems related to product quality and corporate management, complicating its efforts to restore market confidence and rebuild its image.

Last December, Mengniu issued a profits warning, saying the company would lose 900 million yuan (US$132 million) in 2008.

The other giant, Yili, also faces severe challenges. A probable loss in 2009 will knock the company out of the stock market, since it has already suffered losses two years in a row.

Compared with the two giants who are still mired in negative terrain, Bright Dairy is in a more optimistic position and is determined to expand its operations and snatch market share by diversifying its products.

(China.org.cn, April 2, 2009)