March 29, 2011

 

China steps up checks on dairy enterprises

At least 20% of domestic fresh milk and infant formula producers will be kicked out of the dairy market at the end of this month following the latest inspection by the Chinese central government.

 

To help Chinese companies win back a bigger share of the domestic market, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) ordered its local branches to re-inspect dairy enterprises that had already obtained production licenses. The deadline to do so is March 31.

 

According to data released in late February by four provinces and an autonomous region that had completed the re-inspection - Fujian, Guangdong, Shaanxi, Sichuan and Ningxia - all but Sichuan saw 30% of its dairy companies fail. Those companies will have their licenses revoked by the government.

 

In Sichuan, less than 20% of dairy enterprises failed.

 

"Consumers have been confused by irresponsible statements and reporting. There are problems with ongoing speculation that harms the whole industry and the national interest," said Mu Jingjun, secretary-general of the China Dairy Industry Association.

 

The association forecast that more than 20% of the country's dairy companies, accounting for about 10% of the market, will have their licenses revoked when the re-inspection finishes this month.

 

The obligation for every company engaged in dairy production in China to re-apply for licenses was imposed in November by AQSIQ, the Ministry of Industry and Information Technology, and the National Development and Reform Commission.

 

According to the order, dairy companies must have equipment that can test for 64 additives, including melamine. The equipment will cost the companies RMB3-4 million (US$457,000-609,000) each.

 

Only big companies with annual revenues exceeding RMB80 million (US$12.18 million) and more than 20 tonnes of daily output can afford to upgrade their equipment, analysts said.

 

The policy will streamline the production of normal temperature fresh milk but not affect production of powdered milk and pasteurised milk to any great extent. These latter products already have higher standards of quality control that include sourcing the milk to a particular cow and testing equipment.

 

It will also have a greater influence on small companies because the big ones already have mature testing methods. Inner Mongolia Yili Industrial Group Co Ltd,one of China's biggest dairy products manufacturers, and Nestle China, which has three production centres in Shandong province, said they do not need to invest more in testing machines.

 

The world's largest dairy processing company, New Zealand Fonterra Co-operative Group Ltd, said because it only has cow farms in China, not factories, it does not need to apply for the new manufacturing license.

 

China has more than 800 dairy companies at present. About one third of them had finished the application process by February 24, according to AQSIQ. The application deadline was postponed to the end of March.

 

Big companies such as Yili and its major competitor, Inner Mongolia Mengniu Dairy (Group) Co Ltd, have advantages in terms of sales networks that will enable them to take over the 10% market share held by small companies by the end of this month, experts said.

 

China's dairy industry is still in its infancy in comparison with Europe. Since 1997, the industry has been increasing annually at a rate of 25%. Its rapid development saw a handful of small businesses bring discredit to the industry..