February 22, 2019

Mengniu CEO identifies consumer confidence as key challenge for dairy sector

Rocked by food safety scandals in the late 2000s, China's dairy industry has since underwent a regeneration in the past 10 years, said Lu Minfang, CEO of Mengniu Dairy Co Ltd.

Much progress has been made in the improvement of product quality even as the sector is still a long way from recovering complete public confidence, according to the executive.

The reputation of the Chinese dairy industry took a serious hit in 2008 after milk and infant formula from some local dairy companies were discovered to be tainted with melamine, which was linked to the deaths of children.

In the wake of the scandal, quality standards for the Chinese dairy sector have improved to point they become "the highest in the world" today, Lu claimed. He said there is now three times more required testing - compared to Europe and the US-  to ensure finished products are safe for consumption.

China's quality control system places the entire supply chain - from individual farmers to large cooperatives and production bases including how cows are fed and how milk is collected - under scrutiny, China Daily explained.

With the system, Mengniu is able to trace production all the way from raw milk to consumers, Lu added.

Based on statistics by AC Nielson, Chinese companies took up more than 87% of the country's liquid milk market. On the other hand, imports occupy a 60% of share in the baby formula market.

However, even though Chinese dairy products are now better than what were produced in the past, the current challenge is to convince the Chinese public of buying these products, he said.

"So it's more about rebuilding trust and confidence. But on the quality side of the work, we've been doing a really good job," Lu commented.

In the meantime, Mengniu has witnessed rapid growth in the past decade and is among the top 10 dairy companies in the world, according to a 2018 RaboResearch ranking.

Still, its $10 billion business could doubled if the average consumption of Chinese consumers increases, Lu said.

He also believed that Chinese dairy sector could double in the next five years if factors such as the growing Chinese appetite for Western foods like pizza and pasta are taken into account.

Mengniu has also implemented a new global strategy in which products that the company sources in Australia will be sold in the Southeast Asian market.

In addition, Mengniu has been expanding outside China. Related developments to this expansion include production facilities in Australia and New Zealand, as well as an R&D center in the US and a small laboratory in France.

- China Daily