Dairy firms raise prices to fund 'damage control'

PUBLISHED : Monday, 02 January, 2012, 12:00am
UPDATED : Monday, 02 January, 2012, 12:00am


China's biggest dairy companies are raising prices in the new year, with one industry expert saying they need more money for public relations in the wake of several scandals.

Customers receiving deliveries of Sanyuan milk were told the price of a 200-millilitre bottle of milk or sour milk would increase 20 fen, starting yesterday. The old price ranged from 1.90 yuan (HK$2.31) to 2.50 yuan.

'We decided to adjust product prices, starting on January 1 because increased labour and logistics costs and expensive raw materials have caused operational difficulties,' Sanyuan said in a note to customers.

'We apologise for the inconvenience.'

An unidentified Sanyuan executive told The Beijing News that nine ultra-high-temperature products would also see their prices increased, adding 'it is a choice we had to make'.

Several supermarkets in Beijing told the newspaper they had been informed in writing of price rises by Sanyuan and Mengniu and that Yili, another dairy giant, had also given them notice, but not in writing.

However, an unnamed Mengniu Beijing sales executive told the Caixin.cn news website that 'Mengniu would not increase prices' and it was not possible that supermarkets had received such a notice.

The mainland's product-quality watchdog said at the weekend that excessive levels of a cancer-causing toxin were found in milk produced by a Mengniu subsidiary in Sichuan in October.

Mengniu's website was hacked on Wednesday night, with a one-page message calling the company 'a disgrace to our nation', according to screenshots displayed in the media. Mengniu executives could not be immediately reached for comment.

Chen Lianfang , senior dairy industry analyst at Beijing Orient Agribusiness Consultant, said limited raw milk supplies were the major reason for the price increase.

'Winter is low season for milking but high season for milk sales with the new year and the Lunar New Year approaching,' Chen said.

'Dairy companies will be competing to get limited sources of raw milk and the increased price will be paid by customers.'

However, Guangzhou Dairy Association president Wang Dingmian said raw milk prices had only been rising slowly and that the prices of raw materials such as white sugar and packaging materials had actually been decreasing.

He attributed the prince increases to the need for additional spending on public relations to counter the effects of negative media reports.

'China's dairy companies have faced many negative incidents,' Wang said. 'For example in April, 251 primary school students in Shaanxi province fell ill after drinking Mengniu milk at breakfast. Then all of the dairy companies had to invest in order to prevent negative effects. As a result, the dairy companies spent more on advertising.'