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Surviving company leads China's milk industry
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China's dairy industry took an enormous blow with the Sanlu tainted milk scandal, which led to the deaths of three babies, the hospitalization of tens of thousands of others and an international scandal that shamed China.

However, looking back over the wreckage of the affair, there is one dairy producer which stands clear of the scandal, Sanyuan, and it is hoped that it can show the way where Chinese enterprise and government at all levels has failed.

Test results announced publicly on Sept. 17 and 18 by the General Administration of Quality Supervision, Inspection and Quarantine showed the problem was bigger than expected. Many leading domestic brands were tarnished in the scandal, but one firm's reputation remained intact. It was Beijing-based Sanyuan.

"I learned of the test results from the media," said Wang Dan, a marketing manager of Beijing Sanyuan Foods Company Limited. "I'm not surprised that our products have stood the test."

The samples were drawn directly from stores. The second test focused on liquid milk, with 53 batches from Sanyuan and 121 batches from Mengniu. "Mengniu has a much bigger market share than us. The ratio is not in proportion. The check on Sanyuan is stricter," Wang said.

She was surprised that so many domestic brands were involved in the melamine scandal. As a marketing manager she realized the big opportunity which lay ahead for Sanyuan.

Sales of Sanyuan milk soared after the announcement of test results. In the evening of Sept. 21, a Xinhua reporter found in Wal-Mart at Xuanwumen, Beijing, empty shelves where Sanyuan milk had been. Colorful fresh milk and yogurt products from other brands packed the neighboring shelves. A saleswoman said Sanyuan milk was sold out when she came to work at 1 p.m. The store had asked for more, she added.

Similar accounts came from Carrefour, Merrymart and other supermarkets in Beijing. According to the company, Sanyuan sales jumped threefold in Beijing, mainly of liquid fresh milk. Panic buying was reported in some other cities and provinces. Sanyuan milk was sold out for a while in Shanxi Province.

Prior to all this, Sanyuan matched output to sales. Now employees worked extra hours. The capacity was exploited to the full. Machines ran 18to 20 hours a day, with the remaining hours given over to maintenance.

Logistics were reinforced, too. Delivery in Beijing increased, in general, from once to twice a day. For the above-mentioned big stores, the surge in supply required four to five deliveries a day.

At a press conference held on Sept. 20, Sanyuan Foods general manager Niu Liping promised stable prices for all its milk products. He also pledged to boost production to secure supply, intensify quality checks, and pleaded with consumers not to lose faith in domestic products.

The general manager looked not at all happy with the advantageous position his company was placed in the wake of the melamine scandal. Instead, he expressed a deep regret. "It's not easy for the country's milk industry to develop in the current state. It's an outcome of generations of effort. Sanyuan was deeply concerned about the damaging effect of the latest incident," he said.

Engaged in the milk business for more than 45 years, Sanyuan had market strongholds in northern China region including Beijing and Tianjin municipalities and Hebei, Henan, Shandong, Shanxi and Anhui provinces. The company was cautious in enlarging its business. As a result it was losing ground to aggressive later-comers such as Mengniu, Yili, and Sanlu. Sanyuan's market share in Beijing dropped to below 40 percent last year from the 80 percent of about a decade ago.

Sanyuan Foods business division chief Ma Guowu said the current market share in Beijing climbed to about 50 percent. "It could have jumped further, if the company was not short of capacity," he said.

"Honest operation will be rewarded in the end," said Auntie Wang, a loyal Sanyuan milk consumer at Jingkelong Supermarket in Tianshuiyuan, Beijing.

Safe milk source wins battle

The extensive dairy scandal exposed flaws in China's whole milk and milk products supply system - flaws which killed babies, sickened tens of thousands of others and led to an embarrassing international scandal, the effects of which on China's reputation and the reputation of its goods have not yet been fully played out.

According to official accounts, toxic chemical melamine was put into milk products at an early stage. To begin with, milk producers procured raw materials using a standard that graded fresh liquid milk by its protein content. Varied grades of milk were paid different prices. However, the test method commonly used couldn't distinguish milk proteins from other proteins. If melamine was added to milk, it produced proteins that could cheat testing.

It was assumed that dairy farmers might have a motive to cheat by using melamine. But in most cases, farmers sold milk directly to the milking station -- agencies run by all sorts of people. The latter paid the farmer and sold truckloads of fresh raw milk to companies like Sanlu. Milking stations were the major culprit in this scandal, the official report said, because in order to cheat the milk company, melamine must be mixed into milk shortly before the test. Earlier addition would be detected.

In Hebei Province, where Sanlu was based, police had by Oct. 19 rounded up 43 suspects who had worked at milking stations or been engaged in illegal production of a melamine compound known as "protein powder". A couple of suspects reportedly had confessed their guilt. Xue Jianzhong, 55, who had produced and sold protein powder, said he knew melamine was poisonous. He was doing it to make money and he himself did not drink the milk mixed with melamine.

The official story explained why Sanyuan escaped the melamine scandal. The company had a nearly self-sufficient production chain. Its raw milk came largely, or 80 percent, from dairy farms that the company owned or had a stake in.

Recognizing the industry wisdom that "secure milk sources win the battle", the company had invested heavily in building up dairy farms. Its Luhe Dairy Cattle Center owned 27 dairy farms with 35,000 heads of cattle, mostly Holsteins, which yielded 160 million tonnes of quality fresh milk a year.

The farms were run with a strict quality control system that covered all phases of operation, from procurement of animal feed, to the checking and caring of the animal's physical conditions, to hygienic milking, to cooling and swift delivery of raw milk to processing plants.

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