The melamine in infant formula milk crisis of 2008 was a pivotal moment for China, which gave rise to the greatest modernisation of the dairy industry to occur anywhere worldwide.
That’s the view of Xavier Naville and Frank Gibson of Vision Management Consultants, who say the Chinese Government recognised the problem wasn’t about Sanlu, the company which produced the milk, nor its 43 per cent shareholder Fonterra.
“The front end of the dairy industry, the retail, branding and marketing was all 21st Century, but the backend was mediaeval with 1.5 dairy cows the average herd size.
“After 300,000 babies were poisoned the emphasis switched to modern supply chains with a raft of new regulations and improved standards of surveillance and compliance,” says Frank.
In 2008 melamine, a substance used in the manufacture of building materials, furniture and dinnerware, was added to milk to make it appear to have a higher protein content.
That milk was used to manufacture infant formula and it’s estimated 300,000 children fell ill with six infants dying from kidney stones and other kidney damage, and an estimated 54,000 babies were hospitalised.
Frank says while the Chinese Government had modernised many other aspects of its economy, it had been reluctant to do the same for the 700 million peasant dairy farmers, worried that would create social upheaval.
The Sanlu scandal changed all that and was a pivotal moment in food safety in China.
“There has been a big shift from protecting peasant farmers to modern dairying. The transformation during last five to six years has been startling.
“There are still the same number of cows in China as in 2008, which is 12 million, but 50 per cent are in scale model modern farms. This is the greatest modernisation that’s ever occurred in dairying anywhere.”
With China’s history of food safety scares, from dye in buns, melamine in infant formula and antibiotics in chickens, Frank and Xavier says food safety is at the top of their concerns for most Chinese consumers.
“Health and food safety concerns rank more highly than income, education and the welfare and happiness of their parents.”
Consumers consider modern trade, for example supermarkets, and e-commerce channels as more reliable than traditional forms of retail.
“Online sales are bigger and faster-growing in China than any other country; and the internet is the main platform for consumer information,” says Frank.
Chinese also trust the advice and opinions of their peers on social media when making decisions about what to purchase.
Frank says long life milk is an example of what’s happening in the Chinese market which consumes around 7.2 billion litres of UHT milk.
Of that 2.5 billion is local premium milk which sells in 250 ml tetra boxes and retails for $US3.60 a litre and is the most expensive UHT milk in world.
“Ninety per cent of that most expensive UHT milk is sold in second and third tier cities.”
These markets are not targeted by foreign companies exporting long life milk into China largely because of the complexities involved in transporting and handling the product in the “smaller cities”.