“Chinese people are buying infant milk powder formula abroad!” “British retailers had limited the purchases of milk powder to two tins per customer!” – These kind of news appear quite often and many Western businessmen start to think “Well, maybe selling milk powder to China would be a great idea”. Certainly, China may be seen as a big market ripe for conquest, but entering it with dairy product is not that easy. We will explore this topic closely and analyze the chances of such a venture.
Why the Chinese are so obsessed with foreign produced dairy products? It all started in 2008, the year of the Olympic Games in Beijing. Doctors in China were very surprised with the number of children, suffering from kidney stones. Somehow they realized that all the children were eating milk powder manufactured by one company – Hebei-based giant corporation Sanlu. Despite the government’s reluctance, every detail of the case was soon revealed and the public outrage swept China: it turned out that the middlemen added water to milk in order to increase the output, to hide it, they used melamine, a popular substance used in plastic production, which increased the milk protein count. Bribed officials and company representatives were not eager to perform quality checks. Melamine caused kidney stones and kidney failure. As a result, six children died, thousands were sick and two of the managers involved in the case were executed. But the breach of trust of that size cannot be forgiven easily.
Many Chinese parents switched to foreign-manufactured milk powder. A year ago, another scandal followed. This time it was the Yili Corporation from Northern China, the independent quality check agency found out the elevated levels of mercury in their milk. No wonder that almost every time the Chinese people are abroad, they buy large quantities of the foreign manufactured milk powder and other dairy products for themselves, their families and friends.
But in August 2013 the unexpected turn of events occurred. New Zealand’s company Fonterra, one of the biggest importers of dairy product to China, had discovered dangerous bacteria in 38 tons of whey protein, used in soft drinks and baby formula. According to the Chinese authorities, 420 tons of baby milk powder was contaminated and promptly withdrawn from the market. China has imposed an import ban on New Zealand’s (and Australian) dairy products, the market share of Chinese and Japanese producers had risen instantly.
Chinese authorities should be somehow satisfied: Fonterra scandal provided the pretext for more scrutiny in control of the imported dairy products (import can be limited – more money stays within the country), and, as the dozens of pro-governmental “50 Cent Party rel=”nofollow” internet commentators have told us, “Foreigners also have unclean hands, so everyone has unclean hands, this is how the things are, no need to panic, buy Chinese!”
So, if we consider selling dairy products to China we must realize that it certainly won’t be an easy deal. The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) of the PRC has issued a decree, regulating the import procedures. As for present, only the following countries were allowed to import those products: Argentina, Australia (suspended), Austria, Belarus, Belgium, Brazil, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Malaysia, New Zealand (suspended), Poland, Singapore, South Korea, Spain, Sweden, Switzerland, Thailand, the Netherlands, United States, Uruguay, United Kingdom. Every producer must go through registration process, it usually involves obtaining certain certificates in the producer’s country. Chinese may, for example, demand proofs, that the milk was sourced from healthy animals that were fed with no forbidden drugs. After the registration is completed, the first shipment will also be inspected very closely by the Chinese health authorities.
A large company with export experience may try to get through this Great Wall of bureaucracy, but if you are a smaller market player, you are on a hiding to nothing.