MLBA11: October / November 2009

 

 

 

 

Almost a year has passed since the eruption of the melamine-tainted milk scandal that still reverberates across the globe; China's dairy industry is recovering steadily, albeit under a large current of sweep­ing changes.

 

Before the massive scandal that unraveled last September which killed six infants and sickened some 300,000 children, the use of melamine to artificially boost protein content in milk products was a common indus­try practice and an open trade secret in China. Sanlu Group, the leading seller of milk powder in China, was discovered to be the main culprit in the incident. As it failed to repay out­standing debts including compensa­tions to the victims, Sanlu declared bankruptcy in February this year.

 

The exposure of Sanlu's contami­nated milk products has brought along a domino effect to China's dairy in­dustry. In all, a total of 22 companies including some of the major domes­tic dairy firms, were also found to be guilty of producing melamine-tainted milk products. The resultant finan­cial loss in the fourth quarter of last year was so overwhelming that strong sales posted in the first three quarters was struck off in a stroke. Mengniu Dairy, the largest liq­uid milk producer in China, registered an annual loss of RMB948.6 million in 2008 while Yili and Bright Dairy reported los­ing RMB1.69 billion and RMB286 million respectively. Amidst the trou­bled scenes, Sanyuan Group, which was not implicated in the scandal and had since taken over Sanlu's core assets, survived the ordeal with an 87.2 -percent on-year jump in net profits to reach RMB40.76 million.

 

Meanwhile, dairy shares also plummeted as the confidence of both consum­ers and investors was shattered. In China's stock exchange, Yili's shares plunged from RMB17 to RMB6 last August while Bright Dairy shrunk from RMB7.60 in September 2008 to RMB3.20 last December. Mengniu, listed in Hong Kong in 2004, saw its shares fell from HK$24 to HK$6.40 last August as well.

 

The domestic and internation­al reactions to the event were also unanimously furious with the Chinese citizens livid that their children were being fed with a poisonous indus­trial chemical while many countries banned all imports of China's dairy products upon hearing the news.