July 6, 2012

China's imported milk powder price at all-time high

China's price of foreign milk powder is at its all-time high with a 900-gramme tin sold at about CNY300 (US$50) which is three to four times the price in Europe and the US.

But foreign brands remain popular in China, making up more than 60% of the market share. And that's even with milk manufactured in China itself.

In Heilongjiang's Shuangcheng, there are more than 10,000 dairy farmers. Each has between 10 and a few hundred cows supplying milk to food companies. Such a fragmented supply chain can be a recipe for trouble, so foreign companies manufacturing in China are extra careful.

Swiss-based Nestle engages with farmers directly, taking out the middlemen. Each morning, farmers bring milk to the collection centre, where samples are taken and sent for tests. Some 22,000 samples are sent to the factory every day, and over 100 scientists and researchers work on quality checks, testing for pathogens, antibiotics, melamine and other chemical additives. The milk is only released for production of milk powder after it has been cleared of abnormalities. If problems are detected, the samples can be traced back to the individual farmer.

Roland Decorvet, chairman & CEO, Nestle (China), said, "It's true in China, food safety is a very hot topic for many reasons and therefore we have to be extra careful... We estimate the product can be tested up to 200 times during its life cycle.

"Because of the different issues and scandals over the last few years, the food regulation in China is actually the most stringent and toughest in the world." Heiko Schipper, managing director of Nestle Food & Beverage, Greater China Region, said, "If there's some adulteration happening, we are very ruthless. In serious cases, this will be reported to the police." To improve standards and train farmers in modern practices and technology, Nestle is working with local authorities to jointly open a new dairy farming institute in Heilongjiang. To encourage them to invest in modern facilities such as automated milking systems, Nestle pays farmers according to the quality of their milk. Media reports on food safety have also made farmers more cautious.

Zhao Yu Tao, a dairy farmer, said, "Years ago we used to medicate herds with traditional Chinese medicine as well as antibiotic drugs, but now they are forbidden." Wang Gui Feng, another dairy farmer, said: "Besides antibiotics, we have to watch out even more for plasticisers because they are highly toxic. The equipment we use for the cows outside are all made of aluminium, stainless steel and metal. We don't use anything made of plastic." After a rash of food safety scandals, China is still struggling to revamp and regulate the fragmented farming industry.

And with the milk powder market alone estimated to exceed sales of US$7 billion this year, the industry is undeniably attractive. Despite a challenging environment, the Chinese market provides huge business opportunities for the companies which manage to uphold standards. The world's largest food company is planning to continue its expansion here, developing new products to cater to Chinese taste buds.