Column: Chinaís milk misery

Sep 23 2013, 03:20 IST
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SummaryThe country has become heavily import-dependent after the 2008 milk scandal

Having safe milk has become more difficult in China.

China was first alerted to large-scale contamination of milk five years ago. In what was termed by the WHO as one of the biggest incidents of food safety violations that it had to handle, the milk scandal that broke out in China in July 2008 had more than 50,000 victims. Six infants lost their lives and more than 50,000 babies were hospitalised after consuming infant formula-milk adulterated with melamine. Contamination was first detected in products manufactured by the Sanlu Group in Gansu province. Crackdown by local authorities and testing of seized samples revealed melamine in baby milk powder produced by another twenty local companies.

An immediate repercussion of the scandal was a sharp drop in sales of local dairy products. The Chinese dairy market has been growing at a rapid rate. Local producers, arguably, took to contamination for reducing operational costs in face of rising raw material and feedstock costs, and also for securing profits within the government-imposed price-ceilings. Irrespective of economic reasons, the detection of contamination and its severe consequences made domestic consumers shun local brands.

The high demand for milk products was sought to be filled by encouraging more imports. New Zealand has been the main source of these imports. Imports of baby formula-milk from New Zealand to China are currently worth $2.5 billion. Raw milk powder imports from New Zealand account for more than four-fifth of Chinaís milk powder imports. New Zealand milk has been so popular that China has surpassed Australia to become New Zealandís biggest market for dairy exports.

The Chinese milk scandal has been a blessing for New Zealand producers, particularly the largest producer Fonterra, whose products have spread deep into China. High imports have been helped by the bilateral trade agreement. Massive dairy imports by China have changed the trade balance with New Zealand now enjoying a small surplus. While the bilateral agreement empowers China to use domestic safeguards for limiting agricultural imports if they increase beyond threshold levels, high domestic demand and deep consumer faith in imports from New Zealand, has prevented the use of the safeguards.

Good times, unfortunately, do not last forever. For New Zealand too, they appear to have bottomed out, at least temporarily.

A few days ago, Fonterra announced the discovery of botulism causing bacteria in the powder used for preparing infant formula-milk. The announcement led to China forcing an

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