China dairy producer shares rise on policy hopes

SHANGHAI, Sept 20 (Reuters) - Shares of Chinese dairy product makers rose sharply on Thursday after the government announced plans to provide subsidies to dairy farmers and boost the industry. Shares of Bright Dairy & Food Co. (600597.SS) rose its 10 percent daily limit to 14.73 yuan, while stocks of other domestic dairy producers such as Yili Industrial Group Co Ltd (600887.SS) also gained between 1 and 3 percent.

On Wednesday, the State Council, China's cabinet, agreed to offer subsidies to dairy farmers after increasing feed costs and low milk prices have forced many farmers to stop raising cows.

Ding Ping, analyst at Haitong Securities, said the new policies, if implemented, would ensure milk supplies for dairy producers and improve their profit margins.

China's dairy industry has grown rapidly as Chinese consumption of milk, ice cream and yoghurt have surged. But competition is also rising, with top producers Yili, Meng Niu Dairy (2319.HK) and Bright Dairy vying for market share.

Some 40 percent of dairy farmers were losing money and some have had to kill their cows, an official with the China Dairy Association told Reuters on Wednesday. Rising prices for corn, power and labour have added to the cost of rearing cows, while milk prices are kept low by cut-throat competition among companies in the dairy industry, said the official, who declined to be identified.

((Reporting by Charlie Zhu; editing by Ken Wills; charlie.zhu@reuters.com; Reuters Messaging: charlie.zhu.reuters.com@reuters.net; Tel +8621 6104-1778) Keywords: CHINA MILK/SHARES

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