India-First-Global-Insights-Analysis -Sharing-PlatformIndia-First-Global-Insights-Analysis -Sharing-Platform

Milk Problems in China

, September 29, 2013, 0 Comments

Having safe milk has become more difficult in China.

China was first alerted to large-scale contamination of milk five years ago. In what was termed by the WHO as one of the biggest incidents of food safety that it had to handle, the milk scandal that broke out in China in July 2008 had more than 50,000 victims. Six infants lost their lives and more than 50,000 babies were hospitalised after consuming infant formula adulterated with melamine. Contamination was first detected in products manufactured by the Sanlu Group in Gansu province. Crackdown by local authorities and testing of seized samples revealed melamine in baby milk powder produced by another twenty local companies.

An immediate repercussion of the scandal was a sharp drop in sales of local dairy products. The Chinese dairy market has been growing at a rapid rate. Local producers, arguably, took to contamination for reducing operational costs in face of rising raw material and feedstock costs, and also for securing profits within the Government imposed price ceilings. Irrespective of economic reasons, the detection of contamination and its severe consequences made domestic consumers shun local brands.

The high demand for milk products was sought to be filled by encouraging more imports. New Zealand has been the main source of these imports. Imports of baby formula from New Zealand to China are currently worth US$2.5 billion. Raw milk powder imports from New Zealand account for more than four-fifth of China’s milk powder imports. New Zealand milk has been so popular that China has surpassed Australia to become New Zealand’s biggest market for dairy exports.

The domestic milk scandal has been a blessing for New Zealand producers, particularly the largest producer Fonterra, whose products have spread deep into China. High imports have been helped by the bilateral trade agreement. Massive dairy imports by China have changed the trade balance with New Zealand now enjoying a small surplus. While the bilateral agreement empowers China to use domestic safeguards for limiting agricultural imports if they increase beyond threshold levels, high domestic demand and deep consumer faith in imports from New Zealand, has prevented use of the safeguards.

Good times, unfortunately, do not last forever. For New Zealand too, they appear to have bottomed out, at least temporarily.

A few days ago, Fonterra announced the discovery of botulism causing bacteria in the powder used for preparing infant formula. The announcement led to China forcing an immediate ban on import of milk powder from New Zealand. Furthermore, Fonterra also had to withdraw shipment of a large amount of milk powder to China because of high nitrite content.

With milk imports driving of the China-New Zealand economic and strategic relationship, the development led to quick reactions. New Zealand foreign minister Murray McCully has visited China and assured the Chinese authorities over complete commitment to food safety. Prime Minister John Key has promptly ordered Cabinet-level investigations and announced his plan to travel to China for assuring domestic consumers about the quality of New Zealand milk products.

China, on the other hand, while assuring that the incident has not affected bilateral ties, has not stopped from taking a shot at New Zealand. Foreign Minister Wang Yi, while expressing hope over New Zealand taking quick remedial action, underlined the importance of such action to, ‘Uphold the legitimate rights and interests of Chinese consumers’. The domestic media has highlighted the fact that foreign brands are also susceptible to lack of quality and implicit faith in such brands is not necessarily justified.

The problem, however, is more complex. The trauma of the 2008 milk scandal that had thousands of children hospitalised has left deep scars on the Chinese society, particularly young mothers. Their faith in domestic milk producers has been completely shaken. They have shifted allegiance to imports leading to great windfall gains for New Zealand, Australian and German milk imports, which are sold in the Chinese market at more than thrice the price of local brands.

The loss of faith of domestic consumers in local brands has been so deep that location of bacteria in Fonterra’s infant formula might not affect them for long at all. Despite the harsh ‘anti-import’ reporting by local media, most consumers are likely to treat the current development as accidental and are unlikely to stop buying imported milk.

It is indeed sad that China, in spite of its phenomenal economic achievements, has not been able to achieve the desired safety standards in domestic production of a critical item like milk. The failure has made it heavily dependent on imports, and perhaps, constrained from coming down as hard on low-quality milk imports, as it would have wanted to. India should be eternally grateful to Verghese Kurien and Amul for preventing such dependence.