China's top economic planner on Monday urged local governments to implement new measures to support dairy farmers by the end of the year.
The country's State Council last month announced measures to promote the dairy industry, such as increased subsidies for dairy herds.
The new measures were to promote the development of the dairy industry, as 30 percent of diary farmers suffered losses in 2006, said officials from the National Development and Reform Commission (NDRC).
Some farmers were reported to have slaughtered dairy cows for meat due to the narrow profit margin, according to the NDRC officials.
The cost of dairy herd raising in China has increased sharply in the past year. The cost of feed has increased by 30 percent; cost of human labor has doubled; while expenses in quarantine, transport and water and power have also increased to different extents.
However, the sale price of milk by dairy producers remained flat. As a result, the profit from raising a milk cow fell by an average 1,200 yuan.
In the meantime, the dairy enterprises were also struggling with narrowing profit margins, as only one third of the country's dairy producers were making profits while another third were suffering losses.
The price of domestic dairy products was almost the same as 2005, said Fan Xueshan, director of the Beijing Creamery Association, as Chinese dairy enterprises were reluctant to raise their prices for fear of losing their share of the fiercely competitive market.
Analysts said the measures were aimed at avoiding a sharp decrease in milk cows against the backdrop of shrinking profits, which might lead to a shortage of dairy milk cows in the near future.
The country has also suffered a short supply of pork and ensuing price hikes in recent months, partly because pig farmers being reluctant to breed pigs after successive losses over the past couple years.
The breeding cycle of a milk cow was the longest in the stock breeding sector, and it would be more difficult for herds to recover if a shortage occurred, said Agriculture Minister Sun Zhengcai last month.
The new measures will put all raisers of progenitive cows across the country under the subsidy program that previously only covered 181 counties.
Under the new measures, the government will provide more financial support, including subsidies and extending loan repayment periods, to farmers.
The government will also provide premium subsidies to encourage dairy herd breeders to buy insurance.
China is the world's third largest dairy producer after India and the United States with an output of 33.02 million tons of dairy products in 2006.
However, the average consumption of dairy products stood at 25.1 kilograms per capita in China, lagging far behind the world average of 100 kilograms and an average of 300 kilograms in developed countries.