Chinese Dairy Demand Hit Hard in Final Quarter of 2008

CHINA - A new report looks at how the Chinese dairy industry is recovering after the devastating melamine adulteration scandal of 2008.
calendar icon 25 August 2009
clock icon 2 minute read

According to the report from Companies and Markets, demand for dairy products was hit hard in the final quarter of 2008 following the hospitalisation of hundreds of thousands of infants from drinking adulterated milk.

At the beginning of this year heavy sentences, including two death penalties, were handed down to those convicted of involvement in the scandal. The chairwoman of Sanlu Group, the company considered to have been most seriously at fault, was given a life sentence. Shortly after that, in February, Sanlu declared bankruptcy.

Sanlu, however, was not the only company to be hit by the scandal. The release of the major dairy companies´ 2008 reports in the second quarter of 2009 showed that healthy profits of the previous years had been turned into large losses by the year´s events.

Market leader Mengniu, which made a profit of CNY935.8mn in 2007, reported losses of CNY948.6mn. The second biggest player, Yili, did even worse, revealing losses of CNY1.69bn. The only major player to stay in the black was Sanyuan Food which made a profit of CNY40.76mn. Sanyuan was also the only major dairy company whose products were not found to contain melamine .

Sanyuan has made the most of its rivals´ difficulties. In March, the company snapped up bankrupt Sanlu´s core assets for CNY616.5mn. The other major players were banned from taking part in the bidding for the assets owing to their involvement in the scandal. In April, Sanyuan rolled out new brands of powdered milk produced at what were previously Sanlu´s factory. The products were well received with strong sales in May .

The other dairy companies, despite the disgrace of 2008, also reported improving sales in the first half of 2009. Yili reported profits in Q108 of double the level seen in Q108. In April. the company said that demand for dairy products had recovered to 90 per cent of its pre-scandal level. Mengniu said that demand for its products had fully recovered in the North of the country but was still at only around 60% of prescandal level in the South .

Assuming that the new measures put in place to ensure food safety are effective and there are no new fears over the safety of dairy products, then the report says it expects demand to resume its upward trend. Rising incomes will allow Chinese consumers to spend more on dairy products and demand for both staples such as fluid milk and more exotic foods such as imported European cheeses are expected to increase .

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