Canadian Manufacturing

China plans to rebuild dairy sector in wake of infant formula scandal

China's dairies have been on the defensive since a 2008 scandal over tainted formula that killed at least six babies

BEIJING—China’s government has launched efforts to build up a handful of large infant formula producers in its latest effort to revive an industry reeling from a tainted milk scandal.

Dairies will be encouraged to merge and will receive financial support, a Cabinet statement said. Plans call for creating 10 producers by next year with at least 2 billion yuan ($300 million) in annual revenue and three to five by 2018 with revenue of 5 billion yuan ($800 million).

China’s dairies have been on the defensive since a 2008 scandal over tainted formula that killed at least six babies and prompted many parents to switch to imported brands.

Domestic brands lost market share to suppliers from New Zealand, Australia, Europe and elsewhere, setting back the communist government’s efforts to build a dairy industry.

Beijing wants to restore consumer faith in Chinese formula and will enforce “strict quality management,” the Cabinet statement said.

In the 2008 scandal, some milk was found to contain melamine, a chemical that can cause kidney damage and other injuries. Unscrupulous suppliers added it to watered-down supplies to fool tests for levels of protein in the milk.

The brand at the centre of the scandal, Sanlu, was broken up and regulators overhauled industry supervision. But that failed to reassure Chinese parents. The reputation of imported brands is so much stronger that customers pay up to three times the price of Chinese milk.

Last August, regulators fined five foreign milk suppliers and one from Hong Kong a total of $108 million on charges they violated China’s anti-monopoly law by setting minimum retail prices for stores.

In May, the Chinese product quality agency announced that only milk products from foreign sources that are registered with the government can be imported.

A list issued by the Administration for Quality Supervision, Inspection and Quarantine showed foreign brands including European units of Abbot Laboratories, Mead Johnson Nutrition Co. and Nestle Group have registered.

An industry group in New Zealand said at that time only six of the country’s 13 suppliers were approved.

In May, the city government of Beijing unveiled plans to give 10.8 million yuan ($1.7 million) to a local brand, Sanyuan Group, to develop “safe and healthy infant milk powder,” according to Chinese news reports.

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