Dairy Products China News

Welcome to the September issue of Dairy Products China News.

The dairy industry in China has been significantly driven and shaped by the response to the country’s food quality issues, above all the melamine scandal of course. Unethical and illegal behaviour led to severe human suffering and economic disaster. Improvements in the country’s food safety system are still being implemented now as a result.

It seems incredible that – simply at a practical level – people believe that they can escape the consequences of such serious malpractice. Yet the dairy industry has seen other such cases for sure. A prime example is the South Korean group Namyang. It lost market share when it was hit by a major scandal in 2013 over abusive practices (‘mireonaegi’ – a practice of forcing small retailers to accept excess merchandise with the full knowledge that they would be unable to sell them before expiration dates). Its CEO was famously quoted as saying “having the largest share of the market is not possible without breaking the law”.

Currently we are beginning to see the effects of a similar type of disastrous behaviour in another industry sector with the case of Volkswagen. In none of these cases should Schadenfreude be an option. Realistically, such corporate mis-behaviour is only to be expected in intensely competitive free markets. Even at a lower level we see many food and beverage companies espousing CSR credentials whilst benefiting from the sale of products which are clearly likely to be detrimental to their consumers – dairy manufacturers selling dairy drinks packed with sugar, for instance. This happens every day in supposedly relatively safe and regulated developed markets – wouldn’t it be nice if China was to develop, albeit painfully, into a future role model for corporate behaviour? This is unthinkable in the foreseeable future: but the country’s leading dairy businesses do have an opportunity to make themselves more truly sustainable by learning from such case studies, from whatever country and industry sector.

The USD/RMB exchange rate in this report is USD1.00=RMB6.3752 on 1 September, 2015, sourced from thePeople's Bank of China. All the prices mentioned in this report will include the VAT, unless otherwise specified.

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