As the Chinese public’s mistrust in its country’s dairy industry continues following a number of milk contamination scares (most notably the 2008 Sanlu tainted milk scandal), a number of Chinese ministries (including the Food and Drug Administration) recently released measures to improve food safety and consumer confidence. 

Milk sources were blamed as the main reason for the Sanlu scandal (milk and infant formula was adulterated with melamine to make protein content appear higher resulting in the deaths of 6 Chinese infants with at least 300,000 others falling ill) and one of the new measures is to require all companies that produce baby formula to own their own dairy farms in an attempt to ensure that quality standards are met and to improve traceability of product (and implicitly accountability for contamination).  Other measures include:

  • adopting stricter management standards to supervise the baby formula industry;
  • requiring all foreign producers of baby formula to be verified and registered; and
  • prohibiting companies from outsourcing baby formula production.

Teng Jiacai, the deputy head of China’s Food and Drug Administration, recently said that “a quality gap in the source of dairy does exist between Chinese and foreign baby formula products” and that the expiry this year of the licences of all of the country’s dairy product producers was an ideal opportunity for Chinese authorities to “carry out a strict assessment of manufacturers and eliminate those that fail to meet the national standards”.

China’s most recent scandal involved a milk powder brand being marketed as being imported from New Zealand which later turned out to be false.

It has been estimated that approximately 70% of all Chinese mothers feed their babies with baby formula, rather than breast milk, and as confidence in domestic milk producers has tumbled, consumers have turned to foreign producers (sales of foreign brand milk in some large Chinese cities have been reported to top 85% of market share).

Significantly, the convergence of both food safety and food security concerns has been a significant factor contributing to continuing investment into dairy in Oceania such as the CN¥1.1b (approximately A$191m) investment by Hong Kong-listed Yashili International Holdings (the subject of a proposed 75% acquisition by China Mengnui Dairy, which is 19% owned by China’s state-backed agricultural and food industry supplier, COFCO) to open an infant formula factory in the Waikato, New Zealand.

Author: Christopher Tompkins

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Brisbane

Ron Eames, Partner
T: +61 7 3135 0629
E: ron.eames@holdingredlich.com

 

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