China's dairy industry on the mend

The recent Fonterra incident is a lesson in that no company in the world can take product safety for granted. It's also sparked the question -- just how far are Chinese dairy companies from their international rivals in quality?

Lunchtime, at Ground Dairy. Australian cows. Swedish equipment. Imported feed. Only the workers are Chinese.

This is what modern dairy farming looks like in China today. The investment is huge -- 420 million yuan for this 8000-cattle farm. But it's a necessary cost for companies that want to ensure supply and control quality.

Quality is almost an obsession in China's post-melamine dairy industry, from strict quarantine to rigorous testing. But unlike the Fonterra contamination, which happened during processing, in China, the problem often lies at the source -- the raw milk. As industry veteran Qin Heping says, if the raw milk is good, the rest is easy.

But at 30,000 yuan for one of these Holsteins, dairy farming is expensive and takes years to pay off -- that's why Ground dairy is using profits from its property development business to offset the cost pressures.

"Dairy is a livelihood industry, the government should help improve technology, offer long term support to dairy farming," said Qin Heping, general manager of Ground Dairy Industry.

"The subsidies are not enough, need companies to invest, need co-operatives, family farms, help them modernize," said Song Liang, dairy analyst from Distribution Productivity Promotion Center.

The cows here can only supply half of Ground dairy's needs. Plans are in place to replicate the farms elsewhere in Jilin. Investors are seeing the potential. Fonterra, the kiwi dairy giant, has built a number of dairy farms in China. Mengniu, is lifting its stake in China's biggest dairy farming company, Modern Dairy.

"The biggest gap between China's dairy industry and world's best practice -- is in the raw milk. There aren't enough services, like vaccination, quarantine, we need more professional managers and cattle caretakers. In terms of dairy processing, there's no apparent gap between China and the rest of the world," Song Liang said.

That gap is closing fast as China's dairy industry goes increasingly international -- Ground has French and American partners, all of China's major dairy companies have several tie-ups and investments overseas. Geoff Raby, former Australian ambassador to China, sees more co-operation ahead.

Because longer term, the focus is not whether imported dairy products are getting worse, but whether Chinese products are getting better. To shake off the industry's quality blues, Chinese dairy firms need to do it -- bottle by bottle.