November 2, 2009

With China's Ministry of Health releasing a draft of new quality and safety standards for dairy products on October 20, it is a sign that the country is serious about protecting consumers and could also change the landscape of the dairy industry, said analysts, consumers and company executives.

 

Following a year of discussions, the new standards were posted on the ministry's website for public input, a move designed to improve the entire industry and restore consumer confidence after last year's melamine-tainted milk powder scandal that killed at least six children and sickened many others.

 

The draft standards are much clearer and more systematised, said Mao Xueying, associate professor of the Key Dairy Laboratory, co-run by the Ministry of Education and Beijing Municipality. Mao said conflicting, repetitive and overlapping standards and rules were cut and some of the new ones are stricter, which meet international standards.

 

In order for consumers to know exactly what they are purchasing, the new standards require milk producers to clearly label their products as pasteurised milk, ultra-high temperature treated (UHT) milk or reconstituted milk, Mao added.

 

In particular, regulations on reconstituted milk have been revised as there is currently no firm rule requiring such products to be labelled as reconstituted or indicating that they contain a certain percentage of reconstituted milk.

 

Reconstituted milk is made from water and powdered milk and a tonne of milk powder can usually make eight tonnes of reconstituted milk. However, after being twice subjected to ultra-high temperatures for health reasons, reconstituted milk also loses a lot of nutrition.

 

Due to the lack of nutrition, many consumers are reluctant to buy reconstituted milk products but they may unknowingly do so since there are no firm regulations, said Mao. With this new labelling requirement, it may help to change the situation.

 

However, many dairy producers, especially those in south-eastern China, will continue to use reconstituted milk to maintain their operations due to a lack of dairies in that region, though their businesses may shrink, said Wang Jiaqi, assistant to president of New Hope Dairy Holdings.

 

In addition, the new standards require pasteurised milk products to be labelled as "fresh milk" with the label close to the name of the products in a size no smaller than the name and no shorter than one fifth of the height of the package while UHT milk packages are also required to meet the same standards.

 

Dairy expert Wang Dingmian believed the new standards will enable pasteurised milk to gain more competitive advantages after a 2004 ban on using the word "fresh" on pasteurised milk products.

 

Media reports described the change as a victory for China's two top pasteurised milk producers, Inner Mongolia Yili Industrial Group and Mengniu Dairy over UHT milk giants, Sanyuan Group and Bright Dairy.

 

Zhu Weihua, an analyst of China Merchants Securities, said the new standards may help to ease the decline of pasteurised milk market share. However, whether there will be a large sales increase still depends on the preferences of consumers, many of whom place convenience as the top priority when they choose a milk product.