Foreign firms milk it in scandal-plagued industry

Dairy imports are increasing their market share as worries about safety standards persist

PUBLISHED : Monday, 03 September, 2012, 12:00am
UPDATED : Monday, 03 September, 2012, 3:30am

A glass of milk from Australia, New Zealand, or many European countries, has become a regular breakfast choice for more and more Chinese consumers.

Driven by a "flight to quality", the dairy imports are gaining market share quickly in big mainland cities, since local consumers are losing confidence in home-grown dairy brands, which have been plagued by numerous quality scandals.

Online shopping portals and supermarkets have been offering a wide range of dairy brands from around the world, taking it as a golden business opportunity to attract middle-class consumers.

"Sales of imported milk products at our shop are growing by 30 to 40 per cent a month by the month this year," said Huang Xiaoqiang, vice president of Yihaodian, a leading online retailer controlled by American supermarket chain Wal-Mart. The site sells 35 foreign brands of UHT (ultra-high temperature treated) milk from 13 countries, and the monthly sales revenue for such milk products exceeds 10 million yuan (HK$12.23 million).

Huang said nearly half the buyers who used the site would include imported milk in their online order basket. And the buyers came from all different walks of life.

Top brands on the site include Oldenburger from Germany, Country Goodness from New Zealand, and Mera from the United States. Most imported milk products are priced between 10 yuan and 20 yuan for a one-litre container. "They are actually around the same price as local brands, but they are believed to have a better quality," Huang said. "The profit margin on imported milk is not high, but we take it as a very important category in our product mix because it represents a quality and it can bring return customers."

A wide variety of imported milk products are also available at other online shops such as a website run by state-owned food giant Cofco; the largest business-to-consumer portal in the country; T-mall of; and many others. The products are also available at high-end supermarkets such as Ole of China Resources Vanguard; Metro supermarkets from Germany; and Carrefour from France.

Jane Zhang, an office worker in a foreign accounting firm in Beijing, has been a regular buyer of imported dairy products for nearly a year. The 36-year-old purchases pure milk from Oldenburger from online shops for herself and her husband, and feeds her eight-month-old son with baby formula supplied by Wyeth from New Zealand. Before her conversion to imported products she bought fresh milk from domestic companies such as China Mengniu Dairy, and Sanyuan Dairy.

"But every few months there would be news about quality problems relating to local dairy products," Zhang said. "Although fresh milk produced locally should be more nutritious, I still don't want to risk buying it as I really don't know what they have put in the milk."

The dairy industry in China is notorious for food safety scandals. In 2008, baby formula produced by Sanlu, then one of the largest dairy makers in the country, was found to contain cancer-causing melamine, which killed at least six babies and made 300,000 ill. The toxic substance was later also found in the baby formula made by a number of companies including the country's three largest dairy firms: Mengniu, Yili, and Bright Dairy.

In the ensuing years worrying scares have continued. Within the past two months it has variously been reported that baby formula sold by Yili was found to contain excessive levels of mercury; Bright Dairy's cheese products failed to pass a government bacteria test in Guangzhou; and a Mengniu sales manager in Zhejiang was accused of falsifying the production dates on 3,000 boxes of milk products that were about to expire.

In a bid to clean up their act, local dairy product producers have taken measures including establishing their own farms to have some control over milk supplies, and stepping up product inspections. But it may take years to win consumers back.

Meanwhile demand for dairy products is rising fast and has the potential to increase significantly. An industry study said that Chinese people consumed around 26 kilograms of dairy products per capita last year, much lower than developed countries. The figure in the United States is 129 kilograms.

UHT milk from overseas, which can be stored for nine to 12 months, currently fills the market vacuum.

Huang Xiaoqiang of Yihaodian said the sales volume of domestic milk products was growing, although growth was slower than that for imported milk.

"Our customers not only drink the milk for breakfast. They use it to make yogurt or cakes, and drink it with cookies for afternoon tea," Huang said.

"It seems that milk is giving them a taste for a different lifestyle."