Effects of the DCD scandal

January 31st, 2013

Nope, this scandal isn’t just going away, and I really hope Fonterra and MPI are paying attention, because so far they don’t seem to have handled things terribly well.

What do I find on Hexun today? A suggestion that perhaps Chinese dairy companies might be rethinking their plans to build milk powder plants in New Zealand, and more on the drop in sales, especially online, of New Zealand made infant formula. Although I also note that both articles also have an ad for imported infant formula, including New Zealand’s Karicare, at the bottom.

Let’s start with the second one first. It’s a repost of a Beijing Daily article. The reporter went to several large supermarkets around Beijing and saw that New Zealand made infant formula was on the shelves in its usual prominent space and apparently selling as normal. Online, however, it’s a different story, with New Zealand infant formula purchasing agents on Taobao having lost half their business and many parents saying they were not giving their children New Zealand infant formula for the time being. The figures given for the drop in sales on Taobao are 50.9% over the last 7 days and 61% compared to the same period last year. A purchasing agent specialising in imported infant formula said that sales had dropped by half and many buyers were now buying North American, Japanese or Dutch made infant formula.

The reporter visited large supermarkets like Carrefour, Walmart and Hualian and saw New Zealand made infant formula on sale as per usual. When asked, the person in charge at one Carrefour told the reporter:


Up till now the supermarket still hasn’t received any notice to take it off the shelves.

The reporter then visited high-end supermarkets like Cuiwei and Modern Plaza and found the same situation. A sales assistant told the reporter:


Lately fewer people have come to buy, but we haven’t received any notice to take products off the shelves or recall them.

To me it’s almost as if the reporter was expecting to find New Zealand infant formula off the shelves or hidden away or supermarkets ordered to stop selling it, and is surprised to see it still there as per normal. I was just in one of my local supermarkets, and I saw nothing unusual about the infant formula display, but I didn’t see any prominent mentions of New Zealand, either.

And now the first one second. This one comes from The Beijing News, and in the paper edition is a full page with an interesting image at the top – two Friesian dairy cows with targets on them and “二聚氰胺” (DCD) repeated in various sizes in the background.

I’m not sure about this word “躺枪” in the headline and later in the text, but Baidu Baike seems to think it comes from a line in a Stephen Chow film and means to be attacked even though one is innocent or just a bystander. “Collateral damage”, then? I’ll run with “collateral damage”. That would make the headline:


Domestic enterprises building plants in New Zealand “collateral damage”

Seems to work.

Anyway, a fair bit of it is repetition of stuff reported elsewhere over the last few days, as has become frustratingly common in modern journalism. But there’s some interesting stuff, too. For example:


Right when domestic consumers were seeing New Zealand as the “Pure Land” of milk production, the crisis broke out.

Tempted to write “Land of Milk and Honey” for “Pure Land”, as that would seem to be pretty close to the intended meaning (especially when look at the prices manuka honey is going for on Taobao and the likes….. no, don’t jinx NZ, we don’t need a contaminated honey crisis, too).



This news unexpectedly made Yili and Yashili, who had only recently announced they would build plants in New Zealand, “collateral damage”. On the day [the day the news broke], Yashili’s share price plummeted. And industry insiders said the DCD incident could well influence domestic enterprises plans to build plants in New Zealand.

On this, Yili chose silence. Yashili said that its plans to build a plant in New Zealand would not be affected by this incident.

Although I think New Zealand has far too many of its economic eggs in the dairy export basket, it would be disappointing to see Yashili and Yili choose to build their plants elsewhere. Why? They were each planning to invest 1.1 billion yuan in these plants, with Yashili building in Waikato and Yili in South Canterbury. That’s money, jobs, and not helping further concentrate all of New Zealand into Auckland. Not that there’s anything wrong with Auckland (apart from its woefully inadequate public transport, of course), but the rest of the country needs some love, too. And I don’t see the sense, given New Zealand’s geological wobbles, of concentrating everything in one city – in Auckland’s case, in one city built on a volcanic field that will one day erupt again. Spreading things out so that one natural disaster (well, one smaller than a possible future eruption of Lake Taupo, at least) doesn’t wipe the entire country out seems to make much more sense than me. So, sure, Yili and Yashili’s investments, if they win the necessary approvals and aren’t scared off by the DCD and go ahead, will help cement New Zealand’s reliance on dairy exports, but at least they’re giving the provinces some much needed love.


There were media reports on January 28 that Mengniu recently spent a large sum of money buying in 3000 head of pure Holstein dairy cows in the hope of improving the quality of its milk.

Cos we can’t trust those Kiwis to not go spraying chemicals on their grass, but we can buy their cows. Right? Fair enough, under the circumstances.


Apart from public perception and cost, building a plant in New Zealand has tax benefits. Yili says that China and New Zealand have already signed a Free Trade Agreement, and in 2020 import tariffs on dairy products will be cut to zero, increasing the company’s profitability and having a positive effect on strengthing the company’s competitiveness.

So let’s settle this DCD issue and get things back on an even keel, because if Chinese dairy companies have such strong reasons to invest in New Zealand, and by doing so they can create jobs and break Fonterra’s stranglehold, then surely everybody but Fonterra wins? And, personally, I’d be quite happy to see Fonterra taken down a peg or two, so bring it on.

Oh, and here’s a statement that caught my eye as I was reading the dead tree version over lunch. MPI can keep reassuring Chinese consumers that New Zealand milk is safe, but:


But after the melamine, Mengniu milk testing positive for excessive levels of the carcinogen aflatoxin M1, and abnormal mercury levels in Yili milk powder scandals of recent years, domestic consumers, when faced with dairy product safety problems, are already as skittish as sheep.

Yup, that’s a fair summary, I think. And they give a couple of examples, of how some Chinese parents are responding to this issue, such as a Weibo post by “依依MM琼”, who has been feeding her baby New Zealand infant formula for a long time, now:


So worried! Exactly which milk powders have tested positive for DCD?

Precisely. Because neither MPI nor Fonterra has bothered to tell anybody which batches of which products tested positive, all New Zealand milk powder is under suspicion. If they’d tell us which batches were relaxed, then people could check, then either dump any dodgy stuff they have or relax.


Song Liang believes that if you want to know whether a dairy product is safe or not, you need to look at how mature the country’s production supervision system is, and in this respect, New Zealand is certainly trustworthy. At the same time he said this incident gave Chinese consumers a warning that one can’t blindly worship western brands, no country’s milk powder is absolutely safe.

Well, true, but MPI seems to have dropped the ball on this one, at least on the PR front. How different would things have been if back in September last year they’d announced precisely which batches of infant formula had tested positive for DCD?

So, I dunno, I can’t see from this article that there is an imminent risk of Yili or Yashili pulling out of their planned investments in New Zealand, and there are clear positives to Chinese investment in New Zealand dairy, but I do see a definite risk of, if MPI and Fonterra don’t get their acts together and start handling this situation properly, serious damage to New Zealand’s dairy exports being done.


Comments are closed.