Chinese infant formula crisis adds to uncertainty

September 29, 2008 07:00 PM
 
By Jim Dickrell

What a difference a few years makes. If the Chinese infant formula crisis had happened five years ago, U.S. dairy producers would have been empathetic from a humanitarian viewpoint. But they probably wouldn't have worried what affect it might have on their milk price.
 
Today, however, China is the fifth leading importer of U.S. dairy products. Last year, the Chinese imported $153 million worth of U.S. dairy products, up a third over 2006. And through July of this year, the Chinese had already purchased $121 million, up another 44% over the same period in 2007. 

The last thing U.S. producers need is to have milk powder, whey protein and lactose back up on our docks because the Chinese have stopped consuming milk. So far, the infant formula crisis has not spilled over in international brands. 
 
"The crisis has been a big hit on dairy demand in China, but that hit has been limited to domestic brands of dairy products,” says Margaret Speich, VP of communications for the U.S. Dairy Export Council (USDEC). Speich spent several weeks in Shanghai and Beijing recently, and sat down with me yesterday here at World Dairy Expo.
 
Speich was in China the day the infant formula scandal became public in August. "We were shocked, because there had been problems in 2004, and again last year, where protein levels in milk were lower than what they were supposed to be,” she says. 
 
Having faced those scandals, and having recently conducted a successful Olympics, USDEC officials assumed the situation had been corrected through tighter inspections and enforcement of existing regulations. 
 
After all, 18 million Chinese babies are born each year. And with a one child per family rule strictly enforced, each one of those 18 million children is even more precious to their families. So you'd think Chinese regulators would be particularly vigilant when it comes to infant formula. No so—and the Chinese public has reacted strongly.

"Domestic dairy production has been decimated,” she says. "But the Chinese consumers have greater trust in foreign brands, and we have had no reports of decreased shipments of U.S. dairy into China.” In fact, some alternative suppliers are seeing sales gains.
 
But, pardon her pun, the situation is still "fluid.” If adulterated milk ingredients are found in other products, the scandal could widen. "The next six months will be interesting times,” says Speich.
 
From January through July of 2008, the U.S. has exported 19,000 metric tons of whey protein concentrates, 18,000 tons of dry whey, 15,000 tons of lactose, 12,000 tons of non-fat and skim milk powder and 1,200 tons of cheese to China. All of these categories, with the exception of dry whey, are up substantially over 2007.
 
Currently, U.S. dairy products are being used in confections, bakery goods, sports nutrition bars and other products. USDEC has also recently partnered with the Chinese Beverage Industry Association. The Association, which caters to a sports-crazed nation especially after China's success in the Olympics, is working with members to create new sports drinks. It creates further opportunity.
 
China represents a huge opportunity for U.S. dairy exports. Of its current 1.3 billion people, 250 million are now considered "middle class” and able to afford upscale diets that include dairy. In just a couple of years, those middle class numbers could burgeon to 400 million.
 
In addition, the Chinese government just this past January tripled its recommended daily dietary intake of dairy from 3.8 oz to 10.5 oz. If all 1.3 billion Chinese ever reach that top level, there might not be enough back hauls to China from the Port of Long Beach to get all of our powder across the Pacific. 
 
One can only hope Chinese food safety regulators can get their house in order, and quickly. We have more powder to ship, and we're making even more for those Chinese babies still on the way.


Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at jdickrell@farmjournal.com.

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