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Dairy sector seeks succor from government

By Wang Huazhong and Zhu Zhe (China Daily)
Updated: 2009-04-10 07:40

The dairy industry is desperate for a government bailout after being hit hard by last year's contaminated-milk scandal and competition from overseas, industry experts have said.

Wang Dingmian, a director of the Dairy Association of China, told China Daily the amount of overstocked milk powder across the country has reached at least 250,000 tons - compared to "near zero" before the melamine-tainted-milk scandal last September.

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Shaanxi and Hebei provinces, as well as Xinjiang Uygur and Ningxia Hui autonomous regions are listed as the most severely hit.

Wang said another national organization, the China Dairy Industry Association (CDIA), last week petitioned the Ministry of Industry and Information Technology (MIIT) for government help.

The CDIA would not comment on the petition, but is believed to have proposed that the government buy a third of the milk powder in stock.

The ministry could not be contacted yesterday but Vice-Minister of Agriculture Gao Hongbin acknowledged on Wednesday that the situation was grim.

He said during an online interview that the industry's plight has affected the interests of dairy farmers, and called on governments at all levels to offer favorable policies to ease their woes.

Wang Weimin, secretary-general of the Dairy Industry Development Association of West China, confirmed to China Daily that a petition has been sent. "The whole industry chain is facing huge challenges," he said.

Experts said three factors are behind the current overstock: The ripple effect of the melamine scandal, competition from overseas companies, and weakening purchasing power due to the current financial crisis.

Last year, domestic milk powder products contaminated with the industrial chemical melamine killed at least six babies and made nearly 300,000 infants ill.

"It will take time for the public to regain confidence," Wang Dingmian said.

He said about half of the milk powder products in stock were produced before the end of last year.

"Although the products have been proven to be free of melamine by government quality control authorities, not many are willing to buy them."

Wang Weimin said the price of imported raw milk powder has dropped from more than 40,000 yuan ($5,850) per ton before the melamine scandal to around 22,000 yuan a ton.

"The price of foreign milk powder is now equivalent to domestic brands," he said.

Chen Yu, an analyst specializing in the dairy market, said "foreign companies are suffering from the financial crisis and have lowered prices to gain more market share".

Figures from the National Bureau of Statistics show imports of milk powder were 4,686 tons last August, but the figure soared to 7,570 tons in October.

Chen said it's hard to say whether the price cuts can be considered "dumping", because it's not easy to compute the cost of production of foreign milk powder. But the low price of foreign products is harming the domestic dairy industry, and leading to mass slaughter of cows, Chen said.

Geng Changshan, a 50-year-old farmer who owns eight cows in Hebei province's Zhengding county, told China Daily he had recently killed one of them.

"I can hardly manage to break even," he said. "We sell milk at 2 yuan per kg. But to make a profit, the price has to be at least 2.40 yuan."

Wang Dingmian said farmers have slaughtered at least 10,000 cows recently due to the drop in milk consumption. He asked for rapid government intervention, failing which there could be shortage of supply once demand recovers later this year.

He said powder bought by the government can be offered to poor areas or regions affected by natural disasters, orphanages and old people's homes, or even the army.