BEIJING--China is taking aim at foreign dairy brands amid rising
worries over tainted supplies from New Zealand. But to boost its
owned tarnished industry, it has to win over customers like Wang
Suhong.
Ms. Wang, who said she is expecting her first grandchild, was
checking out brands of baby formula on Tuesday at a supermarket in
Beijing's Dongcheng district. Her decision was between the U.S.
brand Mead Johnson and Dutch brand Royal FrieslandCampina,
bypassing well-known Chinese brands. "I'm going to the U.S. in
September and plan to bring some formula back from there," she
said.
Chinese state-run media has ramped up criticism of foreign baby
formula after New Zealand's Fonterra Co-operative Group Ltd.
(FCG.NZ), the world's largest dairy exporter, warned it had sold
products potentially containing harmful bacteria. China has banned
imports from New Zealand of some products, including those with
ingredients used to make infant formula.
While Fonterra doesn't sell infant baby formula in China, the
issue has impacted other foreign brands that use Fonterra
ingredients. On Tuesday, Chinese regulators said they asked a
Chinese unit of Abbott Laboratories (ABT) to recall two batches of
infant formula after New Zealand emissaries said they could be
tainted. Abbott said in an announcement on Monday the two batches
didn't use tainted ingredients and its recall is precautionary.
Dumex Baby Food Co., a subsidiary of Paris-based Danone SA
(BN.FR), and Coca-Cola China, a subsidiary of U.S.-based Coca-Cola
Co. (KO), over the weekend announced recalls of some products,
though both stressed they were precautionary.
The scare--for which Fonterra Chief Executive Theo Spierings on
Monday apologized on a visit to Beijing--has given Beijing's
efforts to help its own dairies a rhetorical boost. Beijing this
year has intensified efforts to bolster a domestic industry hobbled
by a 2008 tainted infant formula scandal that killed at least six
babies and hospitalized thousands of others, in one of China's most
shocking food-safety scares.
"Some Chinese consumers hope that foreign brands are absolutely
safe, but recurring problems prove that famous foreign brands are
not always safe," said an editorial published on Tuesday by the
People's Daily newspaper, the mouthpiece of the Communist Party.
The editorial said a number of foreign brands have had quality
issues.
China's official Xinhua News Agency said in a report that among
Chinese consumers, "an increasing number of them have come to
worship foreign brands." Xinhua also quoted industry analysts
saying the scandal is a good opportunity for domestic producers to
"gain the battleground back."
The critical receptions followed a push last month by China's
top economic planning agency to probe price-fixing allegations
among foreign formula makers. Danone, Nestle SA and Fonterra said
they would trim prices as a result.
Central Propaganda Bureau didn't respond to questions about the
media onslaught.
China is an important growth market for dairy companies and one
of the world's largest for infant formula. Sales of dairy products
are expected to climb to $46.5 billion by 2016, up 66% from 2011,
according to market-research firm Euromonitor International. Last
year it imported $1.05 billion in food ingredients for infants,
more than four times what it imported in 2007, according to the
Global Trade Atlas database.
The tainted dairy issue has dealt a blow to Fonterra's
reputation in China. "What can we still eat?" asked a number of
mothers on Sina Weibo, Sina Corp.'s (SINA) popular microblogging
service. Still, many said they would stick to foreign brands, while
a few praised Nutricia brand Karicare because the company was quick
to announce its precautionary recall.
"This will certainly have a negative impact on New Zealand dairy
products, or imported food industry," said Robin Kerawala, Partner
of SmithStreetSolutions, a Shanghai-based consulting firm. However,
Mr. Kerawala added, "it would be very difficult for them to switch
back to domestic brands."
One such mother, Lan Li, closely examined the label of a can of
Mead Johnson formula while shopping at a Wal-Mart Stores Inc. (WMT)
outlet in Beijing's Chaoyang district. "Is this from New Zealand?"
she asked. "No." She then put two cans in her cart. She said she
hasn't considered domestic brands for her 21-month-old child.
The demand for foreign brands has sent ripples through markets
around the world. Chinese tourists have swept Hong Kong, Australia
and Britain, among other countries, for baby formula, prompting
some countries or areas to ban Chinese consumers from buying more
than certain quantity of milk powder.
Though domestic production has rebounded since the 2008 scandal,
China's dairy industry is still struggling to overcome its damaged
reputation. On Tuesday, citing China's State Food and Drug
Administration, Xinhua said China issued draft rules calling for
domestic infant formula producers to have a milk source built or
controlled by themselves as well as research and development
capability.
The tainted dairy products that send shock waves through China
in 2008 were found to contain melamine, an industrial chemical high
in nitrogen that mimics protein in some tests and was used to fool
supplier checks. In some cases, according to authorities, recalled
milk products were simply repackaged and sold again. Food experts
placed much of the blame on China's decentralized food supply
system, which relies on vast networks of independent small farms
and middlemen.
Following the 2008 scandal, China's government quickly
implemented a radical overhaul to rebuild the industry and restore
consumer trust. So that inspectors could better monitor production
and distribution, and to cut out middlemen, the government forced
backyard farmers to move cows into approved facilities known in
academic circles as "cow hotels."
The government also encouraged the development of large
American-style factory farms. It provided cash, free land and other
incentives. The government told the country's top milk
processors--those who buy the milk and turn it into boxed milk,
yogurt, ice cream and cheese--they must purchase a substantial
percentage of its milk from big farms rather than small
producers.
By 2013, China's dairy industry has been rebuilt with
higher-producing cows living on efficient massive factory farms and
eating better food. China this year will make nearly as much milk
as the pre-scandal peak in 2007, with 350,000 fewer cows, according
to U.S. Department of Agriculture data.
China's Agriculture Ministry didn't respond to request for
comment on Tuesday.
Xiaoqing Pi and Alex Frangos contributed to this article.
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