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Sunday, 6 September 2009
Dairy industry now safer, but farmers feeling the pinch
In the first of a two-part series looking back at the milk contamination crisis, Al Guo revisits the dairy farms in Inner Mongolia to see what has changed.
Dairy industry now safer, but farmers feeling the pinch
Al Guo in Hohhot, Inner Mongolia 05 September 2009
In the first of a two-part series looking back at the milk contamination crisis, Al Guo revisits the dairy farms in Inner Mongolia to see what has changed.
When Yu Wenqiang drove his milk truck towards Mengniu’s factory in Hohhot’s Gelinheer county late last month, traffic police stopped him and ordered him to pull over and wait. A few minutes later, a cavalcade of police cars with their lights flashing and mini-vans with the windows tinted black swept past him and drove into the dairy factory.
A traffic policeman told him later that “a big state leader” was visiting. When Yu switched on the news that evening, he learned the visitor was Xi Jinping, heir apparent to President Hu Jintao. According to the CCTV report, Xi had been impressed by the automated production line he saw during his inspection, but Yu laments the leader didn’t get to see the whole picture.
“I wish he had spoken to me. Nobody there would tell him that Mengniu’s giant empire is built on the pain and losses of ordinary dairy farmers and milk collectors.”
Yu runs a small milk collection station within 20 kilometres of the Mengniu factory in Inner Mongolia. His surname has been changed and the name of his village withheld to protect his identity. His livelihood has suffered badly since the contamination scare shook the dairy industry to its core last year. Yu fears fundamental changes to the way milk is supplied could put small farmers and collectors out of business.
Melamine, used in the production of plastics and glue, was found in dairy products from Hebei -based Sanlu group in August last year. A nationwide check found that products from many dairy companies, including Yili and Mengniu, the mainland’s largest two, contained excessive amounts of melamine. The chemical was added to boost nitrogen content, allowing it to pass testing for protein levels. Eventually, more than 300,000 children were made ill and at least six died because of the additive. Dairy factories had to destroy tainted products and reserves. The US$20 billion-per-year industry was paralysed in the following months, and losses have been estimated at about 20 billion yuan (HK$22.7 billion).
The share price of Hong Kong-listed Mengniu Dairy plunged 70 per cent on September 24, last year when the stock resumed trading after a four-day suspension. Mainland-listed Yili saw its stock price drop by 50 per cent over 10 consecutive trading days.
A year later, both dairy giants have regained most of the ground they lost. Revenue for the industry is at 90 per cent of what it was before the contamination scare.
Milk station owners like Yu found themselves at the centre of the attention. They were accused of adding water and melamine to milk to increase quantities, and several Hebei collectors were arrested and given death sentences.
The crisis forced producers such as Mengniu to examine their quality-controls, particularly among milk stations and the farmers themselves. Yu’s milk is now subject to 40 different tests by Mengniu, up from less than 30 a year ago. It has rejected his milk on several occasions.
To ensure that Yu cannot tamper with the milk, a Mengniu inspector has taken the keys to the containers. Hygiene requirements have been strengthened as well. Yu was fined 1,000 yuan twice last month for failing to keep the floor sufficiently clean.
Virtually the only thing that has not changed in the past 12 months is the purchase price for milk from small farmers and collectors.
Farmers still receive 2.4 yuan per kilogram, while milk stations like Yu’s receive 16 cents per kilogram.
“Despite all the extra requirements and equipment, Mengniu has not raised the price,” said Yu, who has invested more than 20,000 yuan on upgrading his milk station. “It’s a nightmare for me and all the dairy farmers nearby.”
Cow feed has increased from 90 fen a kilogram to 1.3 yuan. Now profits are down to about 1,000 yuan per year per cow, and that is assuming that they all stay healthy.
For many dairy farmers, switching to livestock farming is more lucrative. Yu now collects milk from about 100 cows a day, half the number he did a year ago.
For suppliers at Mengniu’s cross-town rival, Yili, the situation is just as bad. Feng Shengcai, a farmer in Wuchuan county’s Changhanmutai village has sold his five cows, even though he still owes a local bank 40,000 yuan from when he bought them in 2003.
“I’ve totally given up. Keeping them longer would only mean racking up bigger debts,” Feng said.
Yili imposed strict quality requirements on farmers and milk stations after the scandal, and issues fines of up to 5,000 yuan if milk fails quality tests. Two farmers in the village have been fined this year, and Feng said this was one of the reasons he quit.
“You make pennies selling milk, but you are fined to death for minor problems. It’s not a business worth doing anymore.”
In addition to the fines, farmers and milk station owners are not paid anything for substandard milk. Yili inspectors also inject smelly, blue chemicals into bad milk, a measure designed to prevent it from being sold elsewhere.
“Without the blue liquid, we could drink the milk ourselves or feed young cows, but now we have to dump it,” said Wang Wenzhong , a milk station owner in Changhanmutai who said he had been fined at least 7,000 yuan by Yili.
These small farmers and collectors are on the wrong end of a shift in the region’s dairy farming industry, a shift that was given significant momentum by the melamine scandal.
“Cattle communities” - small ranches involving several farmers with between 15 and 40 heads of cattle - are getting support from the local government and the dairies, who believe the scale advantage means higher quality and offers streamlined regulation and inspection.
At Yijiangfang village in Tuzouqi county, dairy farmer Zhang Zhilong enjoys a 20 fen premium for his milk. Yili pays him 2.6 yuan per kilogram and helps him negotiate discounts with feed suppliers.
Zhang earns about 50 fen per kilogram of milk, and thanks to the size of his herd, he made enough money. “Compared with all the toiling on farmland, raising cows is easier and income is guaranteed,” he said.
Su Genjia , a milk station owner who had rented a large piece of land to the farmers, said the quality of milk in the community was high. Yili had not rejected a single shipment, Su said.
“Cows are like human beings - if you raise them with the best feed and give them great care, they will be healthy and produce very good milk,” he said.
Earlier this year, the Inner Mongolian government announced 8 billion yuan in preferential loans, to be distributed over the next few years, for cattle communities like Su’s, and larger ranches. Across the country, small dairy farms produce about 60 per cent of the mainland’s milk, while larger farms produce the rest. By 2012, the breakdown will be the opposite.
Milk that comes from “super” ranches has a much higher premium. Temuer ranch in Wuchuan county is home to 2,000 head of cattle. Yili pays 3.6 yuan per kg of milk, 50 per cent more than from small farmers.
“I think the higher purchasing price is fair, because we produce some of the best milk in the country,” deputy manager Xia Zaibiao said. “They said they want us to be here forever, and make as much money as we can.”
2 comments:
Dairy industry now safer, but farmers feeling the pinch
Al Guo in Hohhot, Inner Mongolia
05 September 2009
In the first of a two-part series looking back at the milk contamination crisis, Al Guo revisits the dairy farms in Inner Mongolia to see what has changed.
When Yu Wenqiang drove his milk truck towards Mengniu’s factory in Hohhot’s Gelinheer county late last month, traffic police stopped him and ordered him to pull over and wait. A few minutes later, a cavalcade of police cars with their lights flashing and mini-vans with the windows tinted black swept past him and drove into the dairy factory.
A traffic policeman told him later that “a big state leader” was visiting. When Yu switched on the news that evening, he learned the visitor was Xi Jinping, heir apparent to President Hu Jintao. According to the CCTV report, Xi had been impressed by the automated production line he saw during his inspection, but Yu laments the leader didn’t get to see the whole picture.
“I wish he had spoken to me. Nobody there would tell him that Mengniu’s giant empire is built on the pain and losses of ordinary dairy farmers and milk collectors.”
Yu runs a small milk collection station within 20 kilometres of the Mengniu factory in Inner Mongolia. His surname has been changed and the name of his village withheld to protect his identity. His livelihood has suffered badly since the contamination scare shook the dairy industry to its core last year. Yu fears fundamental changes to the way milk is supplied could put small farmers and collectors out of business.
Melamine, used in the production of plastics and glue, was found in dairy products from Hebei -based Sanlu group in August last year. A nationwide check found that products from many dairy companies, including Yili and Mengniu, the mainland’s largest two, contained excessive amounts of melamine. The chemical was added to boost nitrogen content, allowing it to pass testing for protein levels. Eventually, more than 300,000 children were made ill and at least six died because of the additive. Dairy factories had to destroy tainted products and reserves. The US$20 billion-per-year industry was paralysed in the following months, and losses have been estimated at about 20 billion yuan (HK$22.7 billion).
The share price of Hong Kong-listed Mengniu Dairy plunged 70 per cent on September 24, last year when the stock resumed trading after a four-day suspension. Mainland-listed Yili saw its stock price drop by 50 per cent over 10 consecutive trading days.
A year later, both dairy giants have regained most of the ground they lost. Revenue for the industry is at 90 per cent of what it was before the contamination scare.
Milk station owners like Yu found themselves at the centre of the attention. They were accused of adding water and melamine to milk to increase quantities, and several Hebei collectors were arrested and given death sentences.
The crisis forced producers such as Mengniu to examine their quality-controls, particularly among milk stations and the farmers themselves. Yu’s milk is now subject to 40 different tests by Mengniu, up from less than 30 a year ago. It has rejected his milk on several occasions.
To ensure that Yu cannot tamper with the milk, a Mengniu inspector has taken the keys to the containers. Hygiene requirements have been strengthened as well. Yu was fined 1,000 yuan twice last month for failing to keep the floor sufficiently clean.
Virtually the only thing that has not changed in the past 12 months is the purchase price for milk from small farmers and collectors.
Farmers still receive 2.4 yuan per kilogram, while milk stations like Yu’s receive 16 cents per kilogram.
“Despite all the extra requirements and equipment, Mengniu has not raised the price,” said Yu, who has invested more than 20,000 yuan on upgrading his milk station. “It’s a nightmare for me and all the dairy farmers nearby.”
Cow feed has increased from 90 fen a kilogram to 1.3 yuan. Now profits are down to about 1,000 yuan per year per cow, and that is assuming that they all stay healthy.
For many dairy farmers, switching to livestock farming is more lucrative. Yu now collects milk from about 100 cows a day, half the number he did a year ago.
For suppliers at Mengniu’s cross-town rival, Yili, the situation is just as bad. Feng Shengcai, a farmer in Wuchuan county’s Changhanmutai village has sold his five cows, even though he still owes a local bank 40,000 yuan from when he bought them in 2003.
“I’ve totally given up. Keeping them longer would only mean racking up bigger debts,” Feng said.
Yili imposed strict quality requirements on farmers and milk stations after the scandal, and issues fines of up to 5,000 yuan if milk fails quality tests. Two farmers in the village have been fined this year, and Feng said this was one of the reasons he quit.
“You make pennies selling milk, but you are fined to death for minor problems. It’s not a business worth doing anymore.”
In addition to the fines, farmers and milk station owners are not paid anything for substandard milk. Yili inspectors also inject smelly, blue chemicals into bad milk, a measure designed to prevent it from being sold elsewhere.
“Without the blue liquid, we could drink the milk ourselves or feed young cows, but now we have to dump it,” said Wang Wenzhong , a milk station owner in Changhanmutai who said he had been fined at least 7,000 yuan by Yili.
These small farmers and collectors are on the wrong end of a shift in the region’s dairy farming industry, a shift that was given significant momentum by the melamine scandal.
“Cattle communities” - small ranches involving several farmers with between 15 and 40 heads of cattle - are getting support from the local government and the dairies, who believe the scale advantage means higher quality and offers streamlined regulation and inspection.
At Yijiangfang village in Tuzouqi county, dairy farmer Zhang Zhilong enjoys a 20 fen premium for his milk. Yili pays him 2.6 yuan per kilogram and helps him negotiate discounts with feed suppliers.
Zhang earns about 50 fen per kilogram of milk, and thanks to the size of his herd, he made enough money. “Compared with all the toiling on farmland, raising cows is easier and income is guaranteed,” he said.
Su Genjia , a milk station owner who had rented a large piece of land to the farmers, said the quality of milk in the community was high. Yili had not rejected a single shipment, Su said.
“Cows are like human beings - if you raise them with the best feed and give them great care, they will be healthy and produce very good milk,” he said.
Earlier this year, the Inner Mongolian government announced 8 billion yuan in preferential loans, to be distributed over the next few years, for cattle communities like Su’s, and larger ranches. Across the country, small dairy farms produce about 60 per cent of the mainland’s milk, while larger farms produce the rest. By 2012, the breakdown will be the opposite.
Milk that comes from “super” ranches has a much higher premium. Temuer ranch in Wuchuan county is home to 2,000 head of cattle. Yili pays 3.6 yuan per kg of milk, 50 per cent more than from small farmers.
“I think the higher purchasing price is fair, because we produce some of the best milk in the country,” deputy manager Xia Zaibiao said. “They said they want us to be here forever, and make as much money as we can.”
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