China Ink

An udder disgrace?

New regulations hit home as almost half of China’s dairy producers told to cease production…

An udder disgrace?

A pretty significant failure rate?

Nearly half of China’s 1,176 dairy and infant formula producers failed to renew their production licences as of March 31, according to the General Administration of Quality Supervision, Inspection and Quarantine, China’s top quality supervisor.

The supervisor reported that only 643 dairy firms had passed the inspections; 107 were forced to halt production while they improved their operations, and the remaining 426 simply failed to pass the tests.

It all seemed to come as no great surprise to the Chinese media, and comment in response was very measured.

Once it had delivered its own series of “half the dairy industry shuts down” headlines, the Western press became a little more reflective. Although half of the industry’s firms have been hit, most of them were the smallest operators. The actual share of the market lost to production seems to be closer to 10%. The resulting consolidation is likely to favour the more dominant firms such as Mengniu and Yili Industrial Group, says AFP.

What do the regulations cover?

Last November, dairy producers were told that they had to re-apply for licenses by the end of last month. According to the order, dairy firms must now have equipment that can test for 64 additives, including melamine.

The complaint from producers is that this all costs a minimum of Rmb3 million ($456,000) to implement, which is why so many of the smaller operators have been unable to comply with the new regulations.

The battle is far from over, warns the UK’s Daily Telegraph. Clearly concerned that many dairy owners will just ignore the ban and surreptitiously resume operations, General Administration of Quality Supervision, Inspection and Quarantine officials have been talking tough. “Production without a licence will be strictly punished according to the law,” the agency has warned.

Where next in the
dairy war?
Where next in the dairy war?

The distributors are next in line, says Xinhua. Starting this month, dairy retailers will be required to apply for one of two types of licenses. One will allow them to sell dairy products that contain baby formula and the other will allow them to sell formula-free dairy products. Still, consumers need a lot more convincing, according to the National Business Daily. It quoted Liu Jingjing, a 29 year-old Beijing mother, who said that she would continue to choose foreign infant formula over domestic brands for her four month-old daughter for a “well-known reason”. In fact, demand for foreign baby formula has risen sharply over the past two years to almost half of the market, the newspaper said.

The whole clean-up process will take time, cautioned Stanley Lubman, in the Wall Street Journal last month. For a historical perspective, he pointed to America’s own food manufacturing in the late nineteenth century, which developed with little regulation. By the end of the century, meat quality was often shocking (just read Upton Sinclair’s classic on the theme, The Jungle). At the time, public protest led the government to act.

In China, a similar evolution is underway, although stricter enforcement from local government and a wider focus on protecting consumers will be required.

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