Friday, February 25, 2011

Tighter rules to reshuffle entire dairy industry in China


Some highlights of the story
Up to a quarter of the country's dairy producers could be eliminated in an ongoing campaign to reshuffle a sector marred by a slew of safety scandals in the last couple of years, insiders have revealed.

Since September, food-safety watchdogs have required manufacturers of registered milk products to renew their licenses under tightened regulations. The new registration deadline is the end of March.

To be fully accredited, producers must have adequate equipment for conducting melamine and food-additive tests, as well as have designated personnel for daily product checks, among other requirements that include better training for staff, according to a notice jointly issued in November by the General Administration of Quality Supervision, Inspection and Quarantine, the Ministry of Industry and Information Technology and the National Development and Reform Commission.

"About 20 to 25 percent of the existing milk-processing companies will disappear from the market, as has been widely estimated," Wang Dingmian, former executive director of the Dairy Association of China, was quoted as telling China Business News.

Many of them are small companies, accounting for a mere 10 to 12 percent of the market share, he said.

There are about 1,800 companies that deal in dairy products, but about 60 to 70 percent of the domestic market share is controlled by five diary giants, according to a report by the National Business Daily.

Some producers and farmers with milk-producing cows, however, complained that the new regulations were costly and would force them out of business.

"A large device used for melamine testing could cost up to 10 million yuan ($1.4 million). That would be a burden for small producers," the National Business Daily quoted Yang Min, who holds stock in a small diary company, as saying.

Even if the producer can afford the equipment, a daily expenditure of 1,200 to 1,500 yuan from the testing would also add up, Yang argued, adding that the major stockholders decided to sell their factories.

Since the melamine-tainted powder scandal, more and more domestic consumers are turning to international brands.

Zhang Yongjian, an expert on the food and drug industry with the Chinese Academy of Social Sciences, told the Global Times that the reshuffle of the dairy industry will result in temporary shortages in dairy supply, but it will save China's dairy industry in the long run.

"With the shoddy products weeded out from the market, promising manufacturers, especially regionally renowned ones or second-tier brands, will have bigger room to grow and prosper in the market to create a benign cycle for China's dairy industry," he said

Great news for US-listed stocks such as Rodobo Int. (RDBO) or Emerald Dairy (EMDY).

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