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

Most Chinese brands now have international supply chains that produce baby milk powder on par with global brands, he said.

While more than 90 percent of Chinese consumers are drinking local milk, Lu said that it is harder — and will take longer — to gain Chinese mothers’ trust for infant milk.

“We need to make the supply chain more transparent,” he said.

“In the short term, seeking overseas milk sources is the most effective way for Chinese milk powder brands to win back consumer confidence,” Hua Tai Securities consumer analyst Luo Yixin said.

Among Chinese producers of milk powder, the only company that has managed to eke out any meaningful share since the scandal is Feihe International Inc. It had 8.6 percent of the market in 2017, Euromonitor said.

Even then, Feihe’s success is likely tied to a branding campaign that implied a foreign provenance: Up until 2013, it was listed on the New York Stock Exchange and named American Dairy Inc.

After reverting to its Chinese name and going private, the company’s top-selling product line, Firmus, emphasizes that its milk is sourced from cows in the milk belt that spans from Wisconsin in the US to Hokkaido in Japan. Its cows are actually located in Heilongjiang Province in China’s northeast.

“Domestic baby formula has the highest quality in history and compares with the leading brands in the global market in technology, equipment and management,” said Feihe in a statement. “We spare no efforts to improve the technology and enhance linkages with international dairy peers.”

Products made and packaged overseas can command a price that is as much as double that of domestically produced milk, said UOB Kay Hian consumer analyst Robin Yuen.

NEW TRADING CHANNEL

In Australia and New Zealand, Asia-Pacific nations that promote their agricultural credentials, the 2008 scandal helped forge a new trading channel: China-bound infant formula sold through the mail. From Sydney to Adelaide, so-called daigou shoppers soon started clearing supermarket shelves of tins to resell them at a profit to Chinese mothers.

A2 Milk, named after a naturally occurring protein, was vaulted into China’s top league and Chinese demand now accounts for an estimated 50 percent of revenue. There is little sign of demand dropping off any time soon, even after China introduced tighter manufacturing controls and, on Jan. 1, new e-commerce rules that seek to formalize the daigou trade and make it taxable.

“We’ve got decades in this cycle and we’re right at the start,” said Keong Chan, chairman of AuMake International Ltd, a Sydney-listed owner of shops targeting Chinese buyers and resellers of Australian products, including A2 Milk powder.

The next generation of middle-class consumers in lower-tier cities “could be an even bigger market than the first,” he said.

A spokesman for A2 declined to comment.

Chief executive officer Jayne Hrdlicka said in an interview late last year that she saw “a huge opportunity” in China, as well as in the US.

China’s home-grown infant-formula producers see younger and lower-income parents, less scarred by the melamine scandal, as their hope for growth.

However, some consumers such as Chen could be lost to Chinese companies forever.

“The most important criteria for baby formula is whether it’s safe,” she said. “I only choose international brands.”

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