May 7, 2013

 

 

China's dairy industry is attempting to rebrand itself to tackle plummeting consumer confidence, with the National Development and Reform Commission expected to allocate RMB1 billion (US$162 million) this year on new milk sources, said Gu Jicheng, DAC secretary-general.

 

Chinese consumers have been purchasing increasing amounts of milk powder from foreign countries due to decreased confidence in domestic brands caused by a 2008 food safety scandal.

 

Several countries, including Australia, New Zealand and Germany, have introduced quota measures to cope with China's growing demand for milk powder.

 

Wang said the industry must rebuild consumer confidence before it can be revived. With confidence in domestic companies flagging, foreign companies have moved to fill the void, with 100 foreign dairy brands entering the Chinese market in 2009.

 

A 2012 report by AC Nielsen said that four foreign brands, namely Mead Johnson, Dumex, Wyeth and Abbott, had taken over nearly half of the Chinese market, with sales totalling RMB38.52 billion (US$6.25 billion).

 

Wang said foreign brands are expanding from high-end markets in large cities to smaller markets throughout China, making it even more difficult for their domestic counterparts to rebound.

 

Data from the Ministry of Commerce showed that the average retail price of foreign milk powder stands at RMB200.71 (US$32.60) per kilogramme, while that of domestic brands is just RMB153.79 (US$25) per kilogramme.

 

The Dairy Association of China (DAC) has said that finding "clean" milk sources for domestic companies through the construction of new pastures will be key to regaining consumer confidence.

 

Yang Wenjun, former president of Mengniu Dairy, a company that was also implicated in the 2008 scandal, agreed that Chinese dairy companies should construct their own pastures to ensure a clean and high-quality source for their milk.

 

However, Li Hui, an analyst at Southwest Securities, said the construction will require a great deal of time and funding, which may cause the domestic dairy industry's production and operation costs to rise.

 

Mengniu and other domestic companies have already spent large amounts of money to build new milk production centres in order to tackle the crisis. They are also building more production centres in foreign countries, as the origin of milk products is important to Chinese consumers.

 

Synutra International Inc. spent about RMB700 million (US$114 million) to build an infant formula production plant in France last year. Yili Dairy plans to build a similar plant in New Zealand. Building plants overseas will help domestic companies lower their costs and rebuild trust, Wang said.