Foreign milk powder producers gain after China’s melamine scandal

Posted: January 13th, 2011 | Tags: 2008 milk powder scandal, China, food safety, Friso, milk powder, Sanlu Group | No Comments »

A “quintessentially American” menu provided the culinary anchor for last week’s state dinner between China and the U.S., the first since 1998. Maine lobster, rib eye steak, apple pie – this was classic American fare at its heartiest with ingredients undoubtedly sourced from the finest local providers.

The assured provenance and quality of the meal was probably the furthest thing from President Hu Jintao’s mind during the dinner. His compatriots back home do not have that same luxury. A series of safety scandals in the past several years have rocked consumer confidence in China’s food industry – none more so than in baby milk formula.

In 2008, at least six babies died after drinking domestically-produced milk powder tainted with toxic levels of melamine, an industrial chemical used to make plastic and paint. Most prominent among the culprits was Sanlu Group, a leading dairy company that eventually went bankrupt following after the incident.

Coincidentally, my wife brought back from work this week a hefty tin of Friso milk formula intended for her friend’s new baby. With a RMB 200 price tag – around £19 – it ranks one of the most expensive formulas available in China. Products like these are being snapped up by Chinese mothers though. Scarred by the scandal, Chinese consumers have turned to foreign milk powders for their perceived better quality and food safety. Demand from Chinese shoppers helped foreign producers snatch a 50 percent share of China’s milk formula market, up from 40 percent in 2008. This prompted an agricultural official to warn against increasing imports further, saying that any further rise would hurt China’s dairy industry and milk powder makers.

The fallout from China’s food scandals has spread overseas too. In an online survey for Reuters timed to coincide with the U.S.-China state visit, 81 percent of 571 participants picked China over Mexico as the country with the most lax food safety oversight. But what probably rankles Chinese shoppers even more is that political elites suffer none of these problems. Instead of duck marinated in goat urine, they dine on beef from cattle reared on the grasslands of Inner Mongolia and sip organic tea from the foothills of Tibet. It’s a far cry from the uncertainty Chinese consumers face every time they go shopping.