In 2005, several Chinese entrepreneurs started a milk production company, Modern Dairy. The company realized there was a huge opportunity in China for milk as right now the country is third in the world in terms of production.

Besides, in light of some of the contamination problems in the industry,especially last year's melamine scandal, there was a need for a better approach.

Well, Modern Dairy has caught the attention of the mighty private equity firm KKR. This week, the firm invested $150 million in the venture, according to Bloomberg.

Good morning! A New York Times article reports that cheap booze is seeing a nice sale spike as folks swap out premium or even mid-market brands for rotgut. Popov & Tonic, anyone? The Prince of Darkness over at Zero Hedge illuminates us as to the possibility that a major supplier of financing to rural electrical cooperatives could go dark, taking down dozens of utilities in the sticks with it. Maverick ratings agency Egan Jones began calling this a while back.

MSNBC reports that two-thirds of people surveyed by Pew are hurting thanks to flat incomes and rising prices. I've posted on this here, here, and here. But MSNBC's stories of how these numbers affect families make for compelling reading. This could be the key issue that determines the outcome of the 2008 elections.

Pew's statistics suggest that rising prices and flat income are a chief concern for U.S. citizens. In July, 45% of the public -- compared to 24% in February -- say rising prices are the biggest economic problem. 66% say their incomes are lagging behind their living costs. Gasoline prices are hovering below $4 a gallon while prices of fruits and vegetables have risen 7.6%, dairy products have jumped 9.2%, and cereal costs 10.4% more.

Here are three of MSNBC's stories:

• School teacher. Carol Netzel, a retired elementary school teacher, says people feel as though their incomes don't cover their growing expenses. MSNBC quotes Netzel as saying: "It doesn't matter what the economists say. All the people I chat with at the grocery store, the gas station, shopping for school clothes, all are feeling very depressed because of the beating their budgets are taking."

Oil's at a record peak, transportation costs are going higher, and grocery prices are increasing. But there's a great white hope for fans of frozen yogurt, Gorgonzola, and chocolate malts, as dairy prices are supposed to stay relatively steady or even fall in 2008.

The U.S. Department of Agriculture noted that while milk prices jumped 12% in 2007, they will be under control this year thanks to a 1.1% increase in the cow population and a 1.7% boost in the average output per cow. Overall milk production is expected to rise 2.7% in 2008, faster than the 2.1% growth seen last year.

Declines in wholesale milk prices trickle down to the consumer and could shave off prices on the retail end for bottled milk. Ephraim Liebtag, an economist with the USDA's Economic Research Service, told CNN/Money that the overall price tag for dairy goods (including cheese, butter, and yogurt) is expected to rise 3% this year, slower than last year's 7.5% hike in overall dairy products. This modest advance would be relatively good news for American consumers, who are budgeting for a 4% hike in food purchased in the stores or at restaurants.

Last week, Kroger (NYSE: KR), the nation's largest traditional grocery chain, launched its new milk brand to highlight its cholesterol-reducing ability. The milk, sold under the Kroger Active Lifestyle brand is considered the first national launch of cholesterol-cutting milk.

"There's a major trend toward health and wellness in the country," Linda Severin, Kroger's vice president for corporate brands told the USA Today. "Managing cholesterol is just a key need for many of our customers. This is a way we can help our customers be proactive with their heart health." The trend has shown lower-fat and fat-free milk sales to increase, while whole-milk sales have been on a decline, according to U.S. agriculture statistics.

The milk uses an ingredient with plant sterols, found naturally in some vegetables, fruits, nuts and other foods, and is recognized by the FDA as potentially helping reduce the risk of heart disease.

Like your latte skinny? You may not even know it, but Starbucks Corporation (NASDAQ: SBUX) will soon replace the whole milk it pours into your coffee drinks by default with 2% low-fat milk in stores throughout the U.S. and Canada. Here in Oregon, where Starbucks had been testing the concept, I've been getting (ahem) skinnier for months already, and to be honest, I haven't noticed the difference in taste at all (when I'm in the mood for milk fat, I'll order a 'breve,' made with half-and-half instead of regular milk -- but I'm pregnant so you'll just have to indulge me and excuse my occasional luxury).

Starbucks is banking that customers won't notice the difference, and if they do, they'll thank the beverage giant for the savings in calories and fat. It's somewhat ironic, as although Starbucks has been conducting a health campaign of sorts these past several months; switching to trans-fat-free pastries, hormone-free milk, and offering a "light" version of the chain's popular Frappuccinos; Starbucks' beverages and treats are famous for being, often, higher in both fat and calories than many competing options (just check out That's Fit's "How Many Calories?" feature -- which often features Starbucks drinks). Even switching to 2% milk won't (for instance) negate the considerable caloric surge of three pumps of sweetened syrup -- the default for a grande beverage.

I think the switch is a smart one, both for the bottom line and the size of the average customer's bottom. It doesn't make sense to pour whole milk by default if most customers are used to drinking 2% in their homes (which seems to be the case). However, if I were consulting Starbucks on the overall health profile of its beverages, I'd suggest a switch to far less syrup in each beverage -- all that sugar has got to be worse for us than a little milk fat. What would you change about Starbucks' beverages if you were on the product development team?

I am continually fascinated with those scientists in New Zealand. It seems they'll let nothing hold them back in their relentless pursuit to improve the world. This time they've really amazed me though with their announcement that they have finally bred a cow which produces "skim" milk. Officials at the biotech firm ViaLactia have visions of low-fat milk-producing dairy herds dancing in their heads.

When speaking about their newly isolated low-fat cow, ViaLactia's chief scientist Russell Snell said, "she produces a normal level of protein in her milk but substantially less fat, and the fat she does produce has much more unsaturated fat," Snell said. "She also produces milk with very high levels of omega3 oils." Additionally, the firm claims that they have determined that the low fat traits can be passed on to the cow's offspring.

It's taken nearly six years for the company to determine that this trait is actually carried in the cow's genetic construction and not a simple anomaly. Scientists needed to have the significant cow bred, have her produce female offspring, raise that female offspring to breeding age and the "freshen" her (bring her to milk production) through her own breeding. After all that was done, scientists were then able to test the newly freshened cow's milk to determine that it indeed was as significant as her mother's.

Soon we may very well be seeing cows wearing running shoes and head bands as the new age of dairy begins to dawn. Milk which is naturally low in fat yet contains all the nutritional value of the previous generations is surely going to gather some major attention. In the mean time, I recommend that you keep a watchful eye turned towards New Zealand. It seems to me that the scientific community over there has some real bright stars working for them.

Starbucks Corporation (NASDAQ:SBUX) doesn't break its expenses out by food group, but if it did, "dairy" would certainly be on the top of the list. It may be a coffee company, but milk makes up a large percentage of most of its beverages.

Since the company has switched to trans-fat free pastries, the next item on its list of consumer health phobias: hormones in milk. Artifical growth hormones fed to cows improve milk production; naturally, their use is rife with controversy. Some activists blame artificial growth hormones, known as rBGH, for a wide number of public health problems, from early onset of puberty for girls to interference with a woman's healthy pregnancy.

Starbucks, not one to sit on the sidelines of a potential PR benefit, has announced that all its U.S. stores will switch to rBGH-free dairy products (milk, half-and-half, whipped cream and egg nog). The company hasn't noted when this changeover will occur, although a spokesman said that the percentage of hormone-free milk had gone up from 27% to 37% since the end of 2006.

Sure, ten percentage points in two weeks is a huge jump; but with 63% of the company's dairy products left to go -- and no way to know whether your local shop is hormone-free without raiding its fridge -- activists are reserving their celebrations. And no patting Starbucks management on the back for being proactive. The company has been targeted by the Food and Water Watch, among others, in a campaign to eliminate hormones for several months.