Sat, Jan 26, 2019 - Page 9 News List

China’s lethal milk scandal far from forgotten

Since the 2008 crisis, Nestle has emerged the clear leader, with Chinese firms battling to win back consumers’ trust

By Rachel Chang and Daniela Wei  /  Bloomberg

More than a decade after tainted infant milk powder in China killed six children and exposed institutional neglect of food safety, Chinese parents still do not trust local companies to feed their babies.

That could mean another goldmine for foreign producers as the battle for infant milk shifts to the hundreds of smaller cities beyond the metropolises of Shanghai and Beijing.

The deadly milk scandal of 2008 was a watershed moment for China’s consumers. About 300,000 children were poisoned after Chinese suppliers added melamine, a chemical used to make plastic, to powdered milk to artificially boost protein levels.

Tuesday marks the 10th anniversary of the sentencing to death in China of those at the center of the contamination and its concealment.

The scandal fueled a new era of consumer suspicion and China’s US$27 billion infant-formula industry was reshaped to the near-exclusion of homegrown companies among the market leaders.

While Chinese government regulations on milk powder production are in line with international standards, consumers like Chen Jijie, a Beijing-based mother of two, will neither forgive nor forget.

“I won’t even consider giving domestic brands a chance, even 10 years later,” said Chen, who has a two-year-old child and a newborn baby. “The incident brought my confidence in Chinese baby formula brands to the lowest level.”

Nestle SA’s share of China’s milk formula market has quadrupled since the scandal to make it the clear leader, while annual revenue at Australia and New Zealand upstart A2 Milk Co has soared to close to NZ$1 billion (US$678 million) from only NZ$1.5 million before the crisis.

Foreign milk labels are still viewed by consumers as safer, higher-quality and a mark of affluence, but domestic suppliers are fighting back with savvy branding and lower prices.

The prize is clear: With only a quarter of Chinese moms breastfeeding, China’s infant-formula market is forecast to expand 21 percent to about US$32 billion in 2023, according to Euromonitor International.

Danone and Nestle are focused on parents in so-called lower-tier cities. Danone is bolstering its e-commerce business, since there are fewer retail stores that stock its goods in rural China, while Nestle is assessing which of its products can best capture demand in these areas.

In a statement, Nestle said it carefully chooses its ingredient suppliers. The company also set up a dairy farming institute in northeast China in 2014 that helps teach farmers to produce safe, high-quality milk.

MARKETING TACTICS

Meanwhile, Chinese dairy companies are finding that some sort of association with foreign cows — real or imagined — can go a long way toward gaining market share.

Chinese milk giants Inner Mongolia Yili Industrial Group Co (內蒙伊利) and China Mengniu Dairy Co (蒙牛), both of which were found to have batches of tainted milk a decade ago, are racing to build up foreign milk sources in a bid to win over local mothers.

Mengniu sells a high-priced, made-in-New-Zealand line called Milk Deluxe, the tins of which are emblazoned with snowy, Alps-like mountains.

“Ten years ago, everyone felt depressed and said there was no hope for China’s domestic dairy industry,” Jeffrey Lu (盧敏放), Mengniu’s chief executive officer said in an interview at the World Economic Forum in Davos on Tuesday.

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