Milk Dreams – Melamine Nightmare

From Marc van der Chijs' flickr photostream (check out his blog)

Until now I've haven't posted on the melamine scandal, simply because there are already so many others giving good coverage. Now that China International Business has published my corporate profile of Mengniu, entitled Milk Dreams, it's time to weigh in. I started writing the piece before the melamine scandal broke (see my post on the Mengniu tour), and was nearly finished before the scandal spread beyond Sanlu to encompass China's entire dairy industry. Luckily, there was enough time to update the piece to take into account recent developments.

The piece gives mostly praise for Mengniu and its leadership. It's hard to find fault with a company that has had average revenue growth of 46% for the past 4.5 years. Of course, findings by AQSIQ that implicate Mengniu in the melamine mess show that it needs to get better control of its raw milk supply. This clearly, in my opinion, goes beyond just a long-term business decision to a moral obligation. The company's stock has taken a pounding since the crisis broke, but only 8% of Mengniu's revenues came from milk powder in 2007 (and was even then a loss-making segment). Therefore, it may be a feat as difficult as milking a mouse, but if Mengniu can survive the PR crisis and continue to focus on innovative products and processes then it should be able to rebound — eventually.

It's disheartening to speak of opportunities when infants have lost their lives through sheer greed and incompetence, but it's possible that the big players like Mengniu and Yili will be able to take further market share from smaller dairies since they're the only ones with the organizational capabilities, and deep enough pockets, to implement the standards, processes, and PR and marketing campaigns that will help restore public trust. Keep in mind, it's not just melamine the dairies have to worry about. Now that they've already been exposed to one crisis they have to be lilly white in all aspects of production, HR, marketing, and other parts of their business.

By the way, if you don't don't already read China International Business then I recommend checking them out. Look out for free copies in hotels, cafes and restaurants distributed throughout China. This month's issue also has a piece giving an overview of the challenges and opportunities for foreign firm's in China's dairy sector: The White Stuff.

From Robie's Photo Art flickr photostream

For those of you who aren't already sick of the melamine coverage, the following is a roundup of the crisis and some background to Mengniu, Yili and the Chinese dairy sector.

As an aside, it's interesting how much the English media was able to squeeze out of what, particularly in the early stages, was mostly a Chinese-language event, i.e. press releases, press conferences, government reports, etc. How much of this is a credit to the unsung heroes who assist foreign journalists in Chinese-English translation? The melamine scandal seems an example of "the English-language media" (I realize this is a fairly ambiguous moniker) in general giving good coverage of a China issue, which isn't always the case. Still, as someone whose Chinese isn't good enough to read Chinese-language coverage, I wonder what the English-language media is missing out on... Luckily, we have blogs like Danwei and Sun Bin which can act as a bilingual bridge.

Melamine Mess

WSJ: China Adopts New Melamine Standards

WSJ: More Help for Struggling Dairy Farmers

TIME: Tainted-Baby-Milk Scandal in China

WSJ: Milk Powder Scare: Not Just for Infants and Children

Sun Bin: And the Gold Medal goes to......score 2563mg!

China Daily: Most companies' baby milk powder safe - State Council

Imagetheif: Sanlu melamine milk powder crisis becomes a national issue

Danwei: Provincial government admits wrongdoing in milk scandal

Danwei: Abreast of the melamine milk scandal

BBC: Hong Kong recalls dairy products

Reuters: Starbucks China pulls Mengniu milk amid scare

The Independent: Panic over Chinese milk exports

BBC: All out effort for China Babies

BBC: China quality chief resigns over milk

Updates:

Shanghaiist:UK Business Secretary Peter Mandelson drinks Chinese milk, then gets diagnosed with kidney stones 9 days later

Danwei: May the Milk Wars commence!

IHT: Lawsuits in China's milk scandal unlikely to be settled in court

CLB: China's Courts and Tainted Milk. Never the Twain Shall Meet?

Council on Foreign Relations': China's Troubled Food and Drug Trade

Danwei: China toxic egg scandal spreads

Latest melamine tests from Hong Kong are satisfactory; though the maths are a little confusing in this article: Asia Food Journal: Hong Kong updates melamine test results

Time: China's Melamine Woes Likely to Get Worse

WSJ: Banned by Washington: Chinese food imports

WSJ: China to reform Milk Industry within a year

China Daily: Sanlu ex-boss was aware of tainted milk

China Daily: Big payouts for milk-powder victims

China Law Blog: China melamine yet again and this time its getting fishy

Xinhua: Top legislator: Milk scandal prompts Chinese parliament's revision of draft law


Mengniu

Forbes: Investors finding China Mengniu Dairy Curdled

Bloomberg: China Mengniu Dairy Boosts Milk Tests, Faces `Critical Moment'

Mengniu Investor Information & Financial Reports

China.org: Innovation Leads to Mengniu's Success: Interesting China Daily article (no, that is not an oxymoron) focusing on Mengniu's innovation.

China.cn: Mengniu Creates Growth History: Brief and interesting outline of the Mengniu success story.

CER: Danone-Mengniu Partnership Not Approved: It hasn't been all smooth sailing for the dairy giant. The failure to get the joint-venture approved led to a 4% dip in Mengniu shares.

NBA: Mengniu and NBA Announce Marketing Partnership

Reuters: China's Mengniu to supply milk to KFC restaurants

China Assistor: Niu Gensheng -dairy industry king

iStockAnalyst: Mengniu: A Look at a Chinese Dairy Company

Danwei: Safety issues for two milk brands: This is unrelated to melamine, but instead focuses on OMP, an additive which Mengniu adds to its Deluxe Milk which supposedly helps increase calcium intake.

Xinhua: Mengniu milk additive not harmful to health, MOH says (see above)

Yili

AsiaOne: HK recalls more products by Yili

AP-FoodTechnology: Yili spends to meet Chinese dairy challenges

China Daily: Yili, Mengniu fighting for No 1


China Dairy Sector


The Milk and Dairy Market in China: This 2008 KPMG report is well researched and gives a great snapshot of opportunities for foreign companies in China's dairy market. Key findings pulled straight from the report are: 1. China's dairy market is large and growing but its fragmented nature presents unique challenges; 2. For some categories (e.g. milk powder) China is still import dependent, providing a potential opening for foreign players; 3. Government policy is supportive of the dairy sector (Wen Jiaobao has stated that it's his dream for every Chinese child to have a 1/2 liter of milk per day). Barriers are also relatively low for foreign companies compared to other sectors; and 4. There are opportunities for foreign players to develop the supply chain.

China's Growing Market for Dairy Products: This slightly out-dated 2004 report from Iowa's Center for Agriculture and Rural Development gives a concise overview of China's dairy industry. It has some interesting market research but too easily dismisses the cultural factors that influence dairy purchases in China.

China Drinks its Milk: A more balanced, but largely anecdotal, article from the BBC.

iStockAnalyst: An Overview of the Chinese Dairy Market

Asia Food Journal: Dairy product demand see global increase


Disclosure: I am a member of the advisory board for China Standardization, the English-language magazine administered by AQSIQ.