I am unclear as to what was the problem - I am unclear as to the meaning of the below sentence from their release, and how they are rectifying the problem.
>>The decline in revenue and gross profit performance in the fourth quarter of 2009 compared to prior periods primarily reflected the impact of cross-territory selling in which distributors disrupted regular sales patterns by diverting infant formula products outside of their delegated geographic regions. <<
My take on the issue of cross territory selling is that vendor B went into vendor As district and undercut him on price. That would have eroded the margin and left the area he was supposed to serve open to competitors. That would explain why they had so much milk left over they had to turn into powder. They get this fixed and the profit soars.
That does not explain why the sales of higher margin infant formula products decreased and why the company was forced to sell raw milk powder. Competition would increase the volume of sales of formulas and that did not happen.
Generally Eastern Chinese provinces can afford more than western ones, so you price your product accordingly. Someones been taking advantage of low wholesale prices in Western China and cannibalizing sales on the eastern coast cities.