Centre for Applied Economics and Policy Studies

China has been rapidly increasing its consumption and imports of dairy products in recent years. A two-stage demand system was estimated for livestock product consumption in urban China over the 1990s. Total expenditure elasticities for the livestock commodity group and expenditure elasticities for dairy products within the livestock commodity group were calculated. The results suggest that dairy products, even in urban areas, remain luxury goods because of a high expenditure elasticity (1.26). Due to rapidly increasing consumption and the likelihood of inadequate supply growth, China will continue to increase its imports of dairy products to meet its domestic demand. Projections imply that China’s imports of dairy products may approach 30 percent of its total domestic consumption by 2005. Due to differences in regional income and population growth rates, increases in dairy products consumption may occur especially in central and coastal areas, where potential trade opportunities may exist.