Gloating no help to domestic dairy

Few Chinese can forget November 2008, when six children died and thousands fell ill after consuming infant formula that had been contaminated with melamine to increase its protein content. Sanlu, the then market leader, was the focus of the subsequent investigation. After criminal prosecutions, two Sanlu executives were executed, some others received life imprisonment and the company went bankrupt.

The reputation of China's dairy products was severely damaged, exports dropped, and Chinese consumers lost their trust in domestic dairy companies. Worse, a government spokesperson declared that the food scandal was "a large-scale intentional activity to deceive consumers for simple, basic short-term profit". As a result, consumers outside China now find it difficult to get milk formula in reasonable quantity and at reasonable price, and consumers in China have to pay high prices for the imported products they trust.

For a country that has the world's largest population, the long-term solution to the problem would be to build the capacity to supply safe milk products to all from domestic sources. But since the issue involves consumer confidence that may not be the solution for China. The State Council started a research and coordination study to ensure the safety of infant formula, but it has had no impact on consumers, because sales of imported infant milk products have increased and they now account for more than half of the market share.

Earlier this month, however, Chinese consumers learned that imported infant formula was not totally safe either. Tests on Fonterra milk products showed that it contained a type of bacteria that could cause botulism - a rare but potentially fatal paralytic illness. Fonterra is New Zealand's leading dairy company, and there is no suggestion of deliberate tampering with the products. The company has said the problem was caused by "unsterilized pipes" in a factory.

Foreign dairy companies were dealt another blow when the Chinese government imposed a record 670-million-yuan ($109.4 million) fine on six firms for price-fixing.