Editor's Note: This is a nine-year report card with mixed reviews: in the industry's view, the quality and safety of domestic milk may be close to "full marks"; but in consumers' eyes, the public trust destroyed by the melamine incident still needs to be rebuilt. "The milk confidence issue is not just an industry problem, but a social problem." This special exam is not yet over.
After learning that his own brand was included in the national infant formula registration list, Wu Songhang posted several updates on his social media. The general manager of Beijing Sanyuan Foods' milk powder division seemed to be showing confidence that domestic milk powder would capture the domestic market.
Since August 2017, the infant formula registration list, known as the "strictest milk powder policy in history," has been released in batches. As of September 20, a total of 297 formulas from 53 infant formula companies, including Mengniu, Yili, Yashili, and Nestlé, had been approved. Starting January 1, 2018, infant formula without registration certificates will be banned from domestic sales.
Zhu Guogang, deputy general manager of Yashili Group's Public Affairs and Regulatory Center, lamented that for this application, the company had accumulated massive data from basic nutrition to product formula research and even breast milk research. "I can responsibly say that domestic infant formula (R&D and production levels) has truly reached world standards."
"The main contradiction in the dairy industry is no longer quality and safety, but development," said Gao Hongbin, president of the China Dairy Association, at the 8th China Dairy Conference in June 2017. "The stage where Chinese dairy was troubled by melamine is over; history has turned a new page."
However, most consumers do not feel this way. Online, comments like "Better to drink imported milk for kids" and "I don't have the courage to gamble" still prevail.
A set of data from the "National Dairy Industry Development Plan (2016-2020)" confirms consumer concerns. In 2015, imports of infant formula reached 176,000 tons, 4.8 times that of 2008. "Consumers are buying, mailing, and purchasing infant formula abroad, and foreign brands' market share is increasing. As a result, domestic dairy consumption growth has slowed."
Nine years since the 2008 melamine incident, the complexity and urgency behind the domestic milk trust crisis are far beyond imagination.
"A Quite Dangerous Industry"
When it comes to domestic milk, the melamine incident is an unavoidable topic. At that time, the chemical melamine was detected in 69 batches of products from 22 domestic manufacturers. According to Xinhua News Agency, nearly 300,000 infants suffered urinary system abnormalities due to consuming problem milk powder.
"Why is the Sanlu milk powder incident so unforgettable? The key is that the direct victims were infants, and the severity lies in touching the softest, most fragile, and most sensitive nerve of humanity," Gao Hongbin did not avoid this issue at the aforementioned 8th China Dairy Conference.
Not only the melamine incident, but around 2010, domestic milk faced repeated scandals, continuously undermining consumer confidence—"The 2008 wound was about to scab over in 2010, but someone slashed it with a knife and sprinkled salt on it from time to time." During that period, Lei Yongjun often received warnings from friends: "Old Lei, you're in a quite dangerous industry now!"
"High-income families in first- and second-tier cities are not your target audience at all," Lei Yongjun comforted a dairy company executive at the time. "The worship of foreign brands won't change in the short term. Just focus on your third-, fourth-, and fifth-tier markets."
But imported milk powder was also spreading to areas below third-tier cities. Zhu Guogang found in small-city maternal and child stores that some consumers went straight to foreign brands, "They think the higher the price, the better the quality."
Despite the rejection, Wu Songhang found that most consumers actually know very little about milk powder. Good milk powder must have good milk sources, and good milk sources depend on key indicators like protein, somatic cell count, and total bacterial count. But initially, not only consumers but even many distributors didn't know what "somatic cells" or "bacterial count" meant; the rejection was just based on "vague panic."
The processing of infant formula mainly includes dry and wet processes. The dry process uses bulk powder as raw material, mixing all nutrients in proportion, with lower cost and unclear production dates of the bulk powder; the wet process uses fresh milk as raw material, though more costly, it ensures thorough sterilization, balanced nutrition, and fresh taste.
Wu Songhang revealed that most imported milk powder favored by consumers uses the dry process. To mask the "not fresh" taste of dry-process powder, some companies even add flavorings to enhance the milk aroma.
Showing Off "Good Results"
On the other side of consumer "panic," most people may not have noticed this figure: 98.7%—the pass rate for domestic infant formula in random inspections in 2016. In the same year, the overall pass rate for national food sampling organized by the CFDA was 96.8%.
At the 2017 "China Dairy Quality Report" press conference, Wang Jiaqi, director of the Ministry of Agriculture's Milk and Dairy Product Quality Inspection and Testing Center (Beijing), gave these numbers: the center led 45 quality inspection agencies nationwide, implementing a raw milk quality and safety testing plan for nine consecutive years, covering all raw milk collection stations and transport vehicles across the country. As of 2016, a cumulative 178,000 batches of samples had been tested, covering more than ten indicators including illegal additives and microbial indicators. The pass rate for melamine and other illegal additives has remained stable at 100%, and key quality and hygiene indicators have reached the level of developed countries.
"Most importantly, the dairy quality and safety system has been established, no longer passive emergency response," Wang Jiaqi told Southern Weekly.
Nine years have passed in the blink of an eye, and for dairy industry insiders, this is a proud report card.
In December 2013, the CFDA issued the "Infant Formula Production License Review Rules," requiring that for companies using raw milk as the main ingredient, all raw milk must come from self-built and self-controlled milk sources, and gradually from farms wholly owned or controlled by the company.
In June 2016, the "Infant Formula Product Formula Registration and Management Measures" was implemented, limiting each company to no more than 3 formula series and 9 product formulas. Registering formulas means that China's management of infant formula has been elevated to the pharmaceutical level.
Public complaints, coupled with high-level attention, forced companies into action, and almost every conceivable measure was implemented. Domestic self-built milk sources, and even the model of "acquiring overseas pastures - canning production - selling back home," once became a trend. Yashili even bought a pasture and built a factory about 50 minutes' drive from Auckland. "At the time, it was mainly to meet Chinese consumers' expectations for imported milk sources," Zhu Guogang said.
Senior dairy analyst Song Liang has visited many milk powder factories. After the tours, his most direct feeling was "backbone is stronger," "Any decent domestic company has better equipment than foreign ones."
Now, some pastures and factories have become leisure tourism attractions, allowing consumers to visit the process of dairy farming and milk powder production up close. This is not only a consumer experience but also corporate PR. "Seeing is believing," said Liu Senmiao. In 2017, Junlebao launched the "World-Class Dairy Town" project, expecting to welcome 800,000 to 1 million visitors.
As for quality testing, according to Lu Guang, vice president of Feihe Dairy, domestic dairy companies are almost "self-abusive." Taking Feihe as an example, 24-hour tracking testing, "not waiting until the end to see if it's qualified, but controlling all key points throughout, with 25 testing procedures covering 441 tests."
More and more consumers are beginning to accept the claim of "leading technology, first-class equipment." However, concerns remain, and the haze is hard to dispel.
"Why Doesn't Anyone Believe It?"
"Every year it's the same, I'm used to it." Yuan Yunsheng, secretary-general of the Hebei Dairy Association, took a deep breath and told Southern Weekly: "As soon as you say milk powder is good, the rebellious psychology immediately appears; on the contrary, saying it's bad attracts special attention." In recent years, he increasingly feels that the association and consumers "can't communicate": "The industry has done so much work, why doesn't anyone believe it?"
In the first half of 2017, Wu Songhang attended a closed-door meeting of the agricultural reclamation system, where five or six dozen domestic milk powder companies "spoke their hearts." Many companies also felt aggrieved: "Why do we work so hard, but consumers still don't buy it?"
After the melamine incident, foreign brands flourished, with as many as 200 formula brands from New Zealand alone. Some are brands processed by local companies and sold only to China, while others are completely produced and canned in China, with trademarks registered in New Zealand. The "golden label" increases their value but poses significant quality and safety risks.
In 2013, even the New Zealand Milk Powder Export Association couldn't stand it anymore and came to Beijing to rectify "knockoff" products: "Only 6 companies and over 20 brands of New Zealand milk powder are sold in the Chinese market."
On May 1, 2014, the new foreign milk powder regulations officially took effect. Overseas manufacturers exporting infant formula to China must register according to the "Measures for the Supervision and Administration of Import and Export Dairy Products Inspection and Quarantine," or their products will not be allowed into China. However, the original intention of filtering out OEM foreign milk powder seems not to have been achieved, as some foreign milk powder OEM factories also passed import certification.
"OEM foreign milk powder has been whitewashed into genuine foreign milk powder, which actually lowered the threshold for imported milk powder," Wu Songhang said. Foreign brands flooding into small cities makes it easier for consumers to be misled, "They think imported milk powder is easy to get, so it must be better than domestic."
"Only Time Can Solve It"
First-class quality, strictest supervision, and near-perfect sampling data—domestic milk powder still cannot win over consumers. Companies are also helpless: "There's no good way; only time can solve it." The Ministry of Agriculture's reply to Southern Weekly was, "Start from multiple aspects such as reducing production costs, adjusting product structure, improving product quality, and increasing publicity and guidance."
However, even many ordinary consumers can easily perceive the complexity of the trust crisis. "It's not as simple as 'the government strengthens supervision, companies improve product quality, and the media reports rationally,'" Wang Dingmian said.
"The milk consumption confidence issue is not just a dairy industry problem, but a social problem—it's the public's prejudice from past food safety confidence deficits," Song Liang said.
Many interviewees feel that China's dairy industry has fallen into the "Tacitus trap"—when an industry loses credibility, whether it tells the truth or lies, does good or bad, it will be perceived as lying and doing bad, making it difficult to regain trust.
In 2012, Qing Ping, a professor at Huazhong Agricultural University, and others conducted an experiment: from an economic psychology perspective, they studied consumer trust repair after agricultural product harm crises. They divided corporate repair measures into "informational repair" (timely effective information communication), "emotional repair" (apology, sympathy, and remorse), and "corrective repair" (more focused on material means).
The study found that for "competence-based" trust violations, corrective and informational repairs are effective.
A more profound conclusion: if a company commits a "integrity-based" trust violation, no matter which repair method is used, the effect is not obvious.
In Song Liang's view, China does not lack dairy-related laws and regulations. But to solve the "dead end" situation, how to maintain consumer dignity is key. "We still have a distance to go in making things transparent, simple, positive, and objective."
The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting 1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to jointly explore new chapters of cross-border integration!
Core topics of this conference:
How can the FMCG industry leverage B2B to achieve new growth opportunities?
How should the new supply chain behind new retail be built?
How can intra-city logistics help B2B achieve leapfrog development?
Highlights of this conference:
The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"
Case sharing of excellent transformation and upgrading distributors
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Leaders from well-known companies in various fields, including Alibaba Retail Link, ProLogis Finance, Eternal Asia Supply Chain, Best Dianjia, Yijiupai, and Haiding, will deliver speeches and share pioneering views.
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