China's latest milk tainting scandal may cut the risk of a slide in global dairy prices, by stimulating demand for imports at a time when other buyers are backing off, Rabobank has said.

The future of China's demand for foreign milk, whose rise last year fuelled a jump in world prices, is the "biggest uncertainty" to markets holding on to gains, the bank said.

China's imports of whole milk powder, which tripled in 2009 in the wake of the initial melamine scandal, have been expected by US Department of Agriculture staff to drop by 25% this year as consumer faith in domestic milk recovers.

However, China's appetite for imports "may be supported" by fresh discoveries of dairy contamination melamine, a toxic chemical used in making plastics, but which when added illegally to milk gives it a falsely high protein reading.

China on Wednesday launched a national food-safety campaign, at the end of a 10-day melamine clean-up drive which recalled 170 tonnes of milk powder, prompted three arrests and closed three ice cream factories.

'Consumption growth slowing'

Buyers in many other countries have been trimming their milk orders, thanks largely to the near-doubling in prices over the last five months of 2009.

"With retail dairy prices now on the rise again, there is evidence that end consumption growth is slowing rather than accelerating in some markets," Rabobank said.

"Anecdotal evidence suggests that wholesale buying has also slowed, as buyers contemplate full inventories, high pricing and the forthcoming Northern Hemisphere spring flush."

Milk output typically revives in the spring from a winter low.

Production curbs

Prices at an internet auction run by Fonterra, the world's biggest dairy exporter, fell in February for a second successive month.

Nonetheless, with production waning in many exporting countries, and no sign yet of the European Union releasing its huge stocks of skimmed milk powder and butter built up by intervention buying when prices were low, a sharp correction looked "unlikely".