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Can China's dairy sector win back customer confidence?

By Nie Peng (chinadaily.com.cn)
Updated: 2008-09-23 14:35

Lost ethics vs imbalanced interests

So far, tainted dairy products have hospitalized nearly 13,000 infants and killed four.

The angry public and media have pointed their finger at the immoral behavior and questioned the "bottom line" ethics of the blacklisted dairy firms.

The "bottom line" for surviving competition is that businesses still make profits after paying expenses and taxes. Since businesspeople aren't philanthropists, moral lessons and self-discipline can't guarantee their profit chase sticks to ethics as well as the law.

Of course, raw milk suppliers can't shift off their responsibility for the current crisis. But that doesn't mean dairy enterprises have nothing to do with the wrongdoing.

A milk farmer surnamed Li in Baotou of northern China's Inner Mongolia told China Business News that he borrowed more than 3 million yuan in 2004 to raise cows in hopes of getting rich, only to conclude that "keeping cows means losing money". He quit the business a few months later.

Another milk farmer surnamed Zhong agreed with Li. He lost an average of 0.1 yuan a kilogram of milk on rising feed prices and low raw milk prices.

Industry insiders estimated milk farmers received only 10 percent of the industry's total profits, with 30 percent going to dairy producers, 30 percent to packaging firms, and the remaining 30 percent to raw milk collecting stations and dairy dealers.

Liu Chengguo, director of the Dairy Association of China explained why prices of raw milk didn't go up with the rising costs of raising cows.

"Raw milk prices are unilaterally determined by dairy enterprises in many parts of the country and milk farmers simply have no say in the pricing," Liu told a recent dairy industry meeting.

Moreover, dairy enterprises lower their quality requirements on raw milk in off season while raising the standards in peak season.

Milk farmers can hardly form a united force against dairy producers or milk collecting stations. In turn, milk collecting stations, owing to their small scales and large quantities, cannot challenge dairy producers.

A research report released early this year noted that dairy enterprises regulated the yields of milk collecting stations by setting quality standards for raw milk.

In summer, almost all milk collecting stations threw away milk that was deemed by dairy firms as not up to standard.

Liu said the most pressing issue the dairy industry has to tackle is to form a reasonable pricing mechanism, which can balance the interests of dairy producers, processors and dealers.

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