Food Safety Standards & the Dairy Industry in China: Impact of Regional Divide and Income Inequalities

IITM CSC Special Report No. 1
June 2011

Food Safety Standards & the Dairy Industry in China: Impact of Regional Divide and Income
Inequalities

 

 

China’s Dairy Woes - Regional Divide and Income Inequalities

In 2008, China was host to one of the most severe food-safety lapses in recent years involving milk and infant formula, and other food materials and components, adulterated with melamine. This exposed the aberrations in the dairy industry in China and has had implications on the regional divide and the matter of income inequality in the country.

China’s Dairy Standards:

After the 2008 incident, reports regarding the quality of milk have become quite regular with the consumer awareness and media responsibility, both, having been more sensitized. After the revision of the dairy standards by the Ministry of Health in 2010, there has been an ongoing public debate with regard to the viability of these new standards with regard to food safety and security. Last year, the Ministry of Health increased its baseline of bacteria count in raw milk from 500,000 to the current 2 million cells per milliliter, and lowered the minimum standard of protein content from 2.95 to 2.8 percent. The debate revolves around this central issue – as to whether these standards ensure consumer safety, since they are lower than the standards being followed in Europe and America[1].

In April, earlier this year, around 250 children at Yuhe township primary school in Yulin, Shaanxi province, fell ill after drinking school milk manufactured by one of Mengniu's local plants in the province. Test results released later said the milk met China's national standards[2]. The media has been acting as a public platform for the public debate that has ensued with the new dairy standards being adopted. Consumer’s concern and awareness of food quality have undoubtedly been fuelled by large increases in real per capita income, development of technology and medicine, as well as food safety scares of recent years[3]. The implications of a lapse of food safety standards are so large that state authorities cannot afford to ignore them. Also, the cost of negligence is very high in a globalised world since the products of one country are not often traded within its own territory alone.

The exposure of the dairy industry and its related issues has implications on three broad concerns – the regional divide in China and the inequalities in income reflecting on consumption patterns, and the difference in exports and domestic produce.

The Regional Divide and the Income Inequalities

The revised dairy standards in China have given rise to a polarization within the dairy industry in China – in the form of proponents and opponents. In a broad sense, the dairy producers and corporations hailing from the deep hinterland of China are defending the government’s stipulations, while the producers and corporations from the coastal areas are opposing the same. This difference in the geographical region of the two opposing factions is pivotal to the understanding of the crux of the issue. There exists an inequality with respect to the per capita GDP and economic industrialization of the coast and the non-coast regions in China. In a broad sense, while the income levels are higher in Eastern (Coastal) regions, that is not the case in the hinterland. The data to supplement the argument is given in Table 1.

The proponents of the dairy standards argue that since seventy percent of the Chinese dairy farmers do not possess more than a 100 cows, and that they are too poor to afford sophisticated machinery that helps in conforming to international standards of dairy produce, having ‘unrealistic’ standards is not fair to them and that it will lead to the small and marginal farmers throwing out most of their produce. These revelations were made by Nadamude, Secretary-General of Dairy Association of the Inner Mongolia Autonomous Region. Further, Jin Hai, executive director of the Inner Mongolia Dairy Industry Association, defended these standards by taking into account the fact that the Chinese Dairy Industry is still too infantile to be aiming to maintain international standards[4]. Pro-ministry experts argue that according to the ministry's survey, 90 percent of raw milk produced in North China in 2008 was below the standard of 2.95[5]. Hence, having a standard of 3 would be unreasonable and unviable for the common farmer.

However, there has been staunch criticism of these defenses by Wang Dingman, chairman of the Guangzhou Dairy Association, Wei Ronglu, an official with the Dairy Association of Western China, and Guo Benheng, president of Bright Dairy & Food, Shanghai. They allege that these defenses are only excuses for what maybe a major lobbying-cluster in the Inner-Mongolia region due to the presence of two Chinese dairy giants - Yili and Mengniu. Also, both Wang and Guo expressed dissatisfaction at the standard of dairy farming in China and how protectionism by the government is not the answer to the root of the problem. There have been allegations that this move is to benefit these corporations who were unable to maintain required sanitation and storage facilities to account for the required amount of bacteria and protein in the milk. There is also a growing consensus that reducing the quality-requirements of raw milk harms the common farmer, as such, since he will get a lower price by these corporations compared to what he could get by simply feeding the cattle more fodder (which would result in higher protein in the milk) and selling the milk at a higher price. So, basically, the trade-off for the common farmer is not very conducive as opposed to what the proponents of the new standards have been claiming.

There exists a clear stand-off between the two factions. Regional inequality is the cause and, in consequence, also the effect of such polarization. Policy-making has to factor in these inequalities in order to ensure an equitable effect – economically and sociologically. It has been argued by pro-ministry voices that due to the high per capita GDP of these coastal regions, higher prices for milk will not affect the public in these provinces as compared to the hinterland provinces. Hence, lower standards are feasible for most parts of China. What is being ignored here is the fact that milk is not a luxury item, but a necessity. The quality of milk is of crucial importance especially for infants and young children. In such a scenario, the government is neglecting the fact that even poor families from the hinterland provinces will spend more on better quality, imported milk instead of risking the life of their only child on domestic produce. In papers like China Daily, this opinion is being garnered with a lot of momentum, as articles which voice the angst of the consumers from Beijing and other hinterland regions of China are being published which echo the same sentiment – the family budget being strained to the hilt but no compromise on the quality of milk[6]. In such a situation, it is reasonable to question whether the government is making a justified policy-decision. If the government maintains high standards and encourages domestic producers to engage in high-quality produce, the strain on the budget of the common man will lessen. And if it does not, then the bridge between those who can afford high-quality milk, and those who cannot, will increase manifold creating an income divide, and maybe even a regional one. To be putting at peril the health of lower-income households does not seem very prudent from the policy-making perspective.

The pro-ministry arguments articulated the concern that if the standards are too high for the Chinese local producers, the supply by domestic producers will fall short of the demand and this gap will be capitalized on by foreign producers and imported products, which is banal for the domestic producers. Data from China's General Administration of Customs show that the country imported 268,500 tons of milk powder in the first five months of the year, an increase of 49 percent year-on-year. Full-year imports may reach 500,000 tons[7]. Other reports suggest that milk powder imports increased from 120,600 metric tonnes before the 2008 scandal to 720,000 metric tonnes last year. Infant formula accounted for 90% of the imports[8]. However, the situation as it is today, depicts a different reason for dependence on imported products and foreign producers – unsatisfactory quality of milk by domestic producers, not the lapse in supply by the same.

The Situation in Hong Kong:

Hong Kong has always enjoyed a special place in China – be it historically, economically or geo-politically. In the current crisis surrounding the dairy industry in China, Hong Kong has to be dealt with separately for two reasons – the difference in political and economic autonomy, and the food regulation standards. The ongoing debate in China has had implications in Hong Kong, especially from the point of view of a consumer.

Mengniu, a milk product giant in China, reported in a statement to the Hong Kong Stock Exchange on Sept 23, 2008, that its liquid milk products are safe. It said Hong Kong food inspectors had tested 41 samples from its products and found all of them to be free of contamination, as compared to the 11 samples from the mainland that did contain melamine[9]. Apart from this, the kind of keenness shown by the administration in Hong Kong to pass a law that bans melamine in milk products has played to usher public faith in the levels of food safety in Hong Kong. Also, the fact that Hong Kong has less stringent import-export regulations has led to an easy availability of imported milk products at cheaper prices than the mainland. This, in consequence, has led to a lot of consumers from the mainland purchasing milk products from Hong Kong (and Macao, for the aforesaid reason). Surrogate buyers are also playing an important role here.

Again, the question arises of how viable is this for an ordinary citizen? Reports are indicative of how expensive this process of surrogate buying and the dependency on imported milk products is becoming for an ordinary Chinese citizen. However, despite the budget crunches, very few are willing to give up on better quality of milk – because of the fact that infants solely depend on milk products, and in such a situation, the products of highest quality are sought[10]. In fact, the demand for imported formula has risen so much that, due to the market forces, the prices have been hiked.

The government has to cogitate as to whether lowering the dairy standards is the right thing to do? Especially because milk is an essential commodity and the quality of milk ought not to be compromised. Regional and Income Inequalities are already existing in the mainland today. By creating one more parameter for such divisions, the government is perhaps doing the public a disservice.

Conclusion

In 2008, around 300,000 people were victims of the adulterated milk, while 860 babies were hospitalized. Six children died owing to kidney stones and kidney failure, which were a result of the tainted milk[11]. Ever since, the government in PRC has taken steps to ensure that such a scandal does not erupt again.

The question arises as to why was melamine added to milk and what purpose did that serve in terms of licensing requirements? Melamine is a compound with high nitrogen level – 66% nitrogen by mass – that gives it the analytical characteristics of protein molecules. While the toxicity of melamine as a one-time consumption is not very high, chronic exposure to melamine results in kidney failure or even bladder cancer[12]. The reason why this compound was added was to stick to the national standards of requirement of protein in milk. The stringency of the national standards for protein content was cited to have driven small and medium-scale farmers to resort to adulteration. However, critics have pointed out that while the standards of raw milk is being lowered, the standards of end products has not been changed – this will lead to artificial post-processing techniques and shows that even after the Melamine scandal, the country permits the adding of protein-enhancing material[13]which puts food-safety in a suspicious place[14].

Caijing had reported in 2008 that "spiking fresh milk with additives such as melamine" was no longer a secret to Hebei dairy farmers for the past two years. Due to fierce competition for supplies, and the higher prices paid by Mengniu and Yili, Sanlu[15]'s procurement became squeezed; its inspection system became compromised "as early as 2005 and allowed milk collection stations to adopt unscrupulous business practices", while government supervision was "practically nonexistent[16]. This goes to buttress the argument that lowering dairy standards is not a viable alternative to preventing melamine addition in milk – supervision and monitoring is a better option.

To conclude, while lowering dairy standards may seem to be helping the domestic producers in the short-run, this might not be the case in the long-run. Foreign firms, like Fonterra, will step in to capitalize on the fact that there is a growing demand for high-quality milk and this will put the livelihood of small and medium-scale farmers in peril.

 

Source:  Ran Sha, Wim Naude and Wilma Vivers Income Disparities Across Chinese Provinces: Revisiting the Convergence-Divergence Debate (ESSA) page 5

 

 


[1] Statistics show that international standards for protein content call for 3 grams per 100 grams of milk. The acceptable amount of bacteria in raw milk in Europe is 100,000 per milliliter.

[2] Zhou Wenting Dairy Firms Blamed For Poor Milk, China Daily dated 20th June, 2011

   (URL: http://usa.chinadaily.com.cn/china/2011-06/20/content_12733019.htm)

[3] Wei Xia, Yinchu Zeng Consumer’s attitudes and willingness-to-pay for Green food in Beijing (School of Agricultural Economics and Rural Development, Renmin University of China)

   URL: http://sard.ruc.edu.cn/zengyinchu/files/taolunwengao/Consumer-s%20attitu...

[4] Should Chinese milk standards depend on national conditions?

 (URL: http://www.beijingtoday.com.cn/debate/should-chinese-milk-standards-depe...)

[5] Ibid.

[6] Pauline D Loh Milking the Market, China Daily dated 12.06.2011.

http://www.chinadaily.com.cn/usa/life/2011-06/12/content_12680679.htm

Li Woke Imported formula milk sees price hike , China Daily dated 09.07.2011

http://www.chinadaily.com.cn/bizchina/2011-07/09/content_12868478.htm

Stricter Milk Standards May Restore Public Faith

http://www.china.org.cn/opinion/2011-03/03/content_22044812.htm

[7] Li Woke Imported formula milk sees price hike , China Daily dated 09.07.2011

http://www.chinadaily.com.cn/bizchina/2011-07/09/content_12868478.htm

[8] Johnny Lin and Staff Reporter Leaders of China’s Dairy industry lock horns

(http://www.wantchinatimes.com/news-subclass-cnt.aspx?cid=1502&MainCatID=&id=20110628000013)

[9] He Dan Experts Seek to End Food Double Standards China Daily dated 21.04.2011

(http://www.chinadaily.com.cn/bizchina/2011-04/21/content_12370819.htm)

[10] Pauline D Loh Milking the Market, China Daily dated 12.06.2011.

http://www.chinadaily.com.cn/usa/life/2011-06/12/content_12680679.htm

Li Woke Imported formula milk sees price hike , China Daily dated 09.07.2011

http://www.chinadaily.com.cn/bizchina/2011-07/09/content_12868478.htm

Stricter Milk Standards May Restore Public Faith

http://www.china.org.cn/opinion/2011-03/03/content_22044812.htm

[11] Branigan, Tania "Chinese figures show fivefold rise in babies sick from contaminated milk". The Guardian     (London) on 2nd December, 2008.

   (URL: http://www.guardian.co.uk/world/2008/dec/02/china)

[13] China Sets Melamine Level Limits In Food Products, China Daily dated 21.04.2011

( URL: http://www.chinadaily.com.cn/china/2011-04/21/content_12365592.htm)

[14] Zhou Wenting Ministry Denies Lower Dairy Standards in China Daily dated 27th June, 2011

   (URL: http://www.chinadaily.com.cn/china/2011-06/27/content_12780270.htm)

[15] “The dairy corporation that was chiefly accused of the melamine milk crisis.  “

 

Author: 
Sneha Annavarapu
Affiliation: 
Intern, IITM China Studies Centre
Error | csc

Error message

  • Warning: Cannot modify header information - headers already sent by (output started at /wxt/websites/csc/includes/common.inc:2748) in drupal_send_headers() (line 1232 of /wxt/websites/csc/includes/bootstrap.inc).
  • PDOException: SQLSTATE[HY000]: General error: 2006 MySQL server has gone away: INSERT INTO {watchdog} (uid, type, message, variables, severity, link, location, referer, hostname, timestamp) VALUES (:db_insert_placeholder_0, :db_insert_placeholder_1, :db_insert_placeholder_2, :db_insert_placeholder_3, :db_insert_placeholder_4, :db_insert_placeholder_5, :db_insert_placeholder_6, :db_insert_placeholder_7, :db_insert_placeholder_8, :db_insert_placeholder_9); Array ( [:db_insert_placeholder_0] => 0 [:db_insert_placeholder_1] => cron [:db_insert_placeholder_2] => %type: !message in %function (line %line of %file). [:db_insert_placeholder_3] => a:6:{s:5:"%type";s:12:"PDOException";s:8:"!message";s:270:"SQLSTATE[HY000]: General error: 2006 MySQL server has gone away: SELECT nid, cid, last_comment_timestamp, last_comment_name, last_comment_uid, comment_count FROM {node_comment_statistics} WHERE nid IN (:comments_enabled_0); Array ( [:comments_enabled_0] => 285 ) ";s:9:"%function";s:19:"comment_node_load()";s:5:"%file";s:48:"/wxt/websites/csc/modules/comment/comment.module";s:5:"%line";i:1282;s:14:"severity_level";i:3;} [:db_insert_placeholder_4] => 3 [:db_insert_placeholder_5] => [:db_insert_placeholder_6] => https://www.csc.iitm.ac.in/specials/food-safety-standards-dairy-industry-china-impact-regional-divide-and-income-inequalities [:db_insert_placeholder_7] => [:db_insert_placeholder_8] => 10.24.0.253 [:db_insert_placeholder_9] => 1511305168 ) in dblog_watchdog() (line 160 of /wxt/websites/csc/modules/dblog/dblog.module).

Error

The website encountered an unexpected error. Please try again later.