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Can China's dairy sector win back customer confidence?
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Regaining confidence

As worrying white-collar families are turning to foreign brands of baby formula and low-income parents rack their brains to find inexpensive substitutes for their babies, the dairy sector is striving to regain customers' confidence in domestic brands.

Sampled products of most of the enterprises that got raw milk supplies from Heilongjiang were found melamine free after the Sanlu scandal was exposed. Among the 87 enterprises that passed melamine tests, 19 were based in the northeastern province.

Since 2006, chaos in the raw milk market has eaten into returns of milk farmers, leading to massive killing and selling of cows in the province, whose number of cows and milk output are among the country's largest.

In the second half of 2007, Heilongjiang publicized a uniform purchase and sale contract, which stipulated basic standards for raw milk trading. The contract prevented enterprises from skimping on payments to milk farmers through making changes to raw milk standards.

In mid-December, the Heilongjiang Dairy Association released reference prices for raw milk. Enterprises are allowed to float their prices within the spectrum of the upper and lower limits of 10 percent based on the reference prices.

As a result, the province's output of raw milk began to recover and the burden on milk farmers from massive losses since 2007 was eased.

As well, eliminating intermediate profit chains between milk farmers and enterprises also helps ensure the quality of raw milk.

Dairy giants were aware of problems in raw milk supplies and even made attempts at exploring controllable raw milk sources before the tainted-milk scandal was disclosed.

The local government of Qionglai, Southwest China's Sichuan Province announced recently it would invest 150 million yuan to build 80 milk farms within the year to supply raw milk to Yili.

In 2007, the State Council issued a set of rules to promote the healthy development of the dairy industry, which industry insiders say have already shown effects.

The National Development and Reform Commission (NDRC) publicized the industry policies for the dairy sector in June, following a March release of requirements for entering the dairy processing industry.

The NDRC orders establishment and gradual perfection of the valuation and forecast system for raw milk as well as regular publication of raw milk prices.

It also requires gradual establishment of a third-party testing mechanism to ensure the quality of raw milk, and encourages dairy enterprises to forge stable purchase-sale bonds and an interests-binding mechanism with milk farmers.

Recently, the NDRC, the Ministry of Agriculture and the State Administration for Industry and Commerce issued a joint circular to keep raw milk prices from drastic fluctuations.

The top priority is to establish a price coordination mechanism for raw milk, according to the circular.

In the wake of the milk scandal, the State Administration of Quality Supervision, Inspection and Quarantine last Wednesday cancelled all national inspection exemptions previously given to qualified food producers.

Li Changjiang, head of the top quality watchdog, yesterday resigned over "responsibility for the milk food contamination" after seven years in office. He was the highest-ranking official to lose his job because of the milk food scandal.

The government's moves should help pull the dairy industry back on the right track. Dairy enterprises should also draw lessons from the scandal to better protect their reputation and the nation's children.

(China Daily September 24, 2008)

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