Move meant to revive sector, raise consumer confidence
About a third of the country's baby formula businesses will be axed, in what experts are calling a major consolidation of the industry.
The government has been trying to revive the industry since the 2008 melamine scandal, but consumer confidence is still lacking.
The move is part of a campaign to scrutinize dairy businesses in the next three months to improve the quality of milk powder products and boost confidence in the industry, the Ministry of Industry and Information Technology announced in Beijing on Tuesday.
"Of the 127 licensed dairy businesses that produce baby formula products, 25 to 35 per cent will be cut. They are not necessarily unqualified, but the country needs more powerful alliances," Zhuang Pei, deputy director of the metropolitan industry division of the Shanghai Municipal Commission of Economy and Information, said on Tuesday.
Only 30 of the licensed producers are active in the market and have a stable sales volume, he added.
Industry insiders said small-scale enterprises, especially private ones, are likely to be eliminated by the regulation, and more mergers and acquisitions led by domestic giants are expected.
"The quality and safety of dairy products has notably improved in recent years, but they still require further improvements to make local brands more competitive," said Zhu Hongren, chief engineer of the Ministry of Industry and Information Technology.
Song Kungang, secretary-general of the China Dairy Industry Association, said more than 60,000 tons of liquid milk for babies were imported in the first four months of the year, a year-on-year rise of more than 164 per cent, and a total of nearly 600,000 tons of dairy products were imported, an increase of nearly 25 per cent from last year.
Sales in the domestic dairy industry slumped in 2008 when a scandal broke out over baby formula that was tainted with melamine, an industrial compound that can cause kidney ailments but was added to milk to make it appear to have a higher protein content. Six children died from drinking the milk, and at least 300,000 others became ill.
In the next two years, China's quality watchdogs carried out a tough battle to clean up the sector, which saw the closure of nearly 70 baby formula producers.
In addition to the requirement that every batch of raw milk be tested for melamine after the scandal, the government also demanded quality supervisors stationed at factories to oversee the whole process from raw materials to end product.
The baby formula businesses also made huge investments to ensure and improve product quality, according to insiders.
Chenguan, one of the four dairy businesses that specialise in baby formula production in Shanghai, said in addition to the 64 items that are required to be tested, it tests more than 20 other items, such as the level of lutein.
"The national standard says the tested amount of melamine in baby formula should not exceed 1 mg per kg, while our ceiling is 0.01 mg per kg," said Sun Jing, brand manager of Shanghai Chenguan Dairy Co Ltd.
Each of the businesses have established credit and traceability systems, said Gu Zhenhua, deputy director of Shanghai Municipal Food Safety Commission Office.
"According to official test reports, dairy products in Shanghai, especially baby formula, are 100 per cent reliable, but consumers don't think this way. One of the popular goods residents buy from overseas is baby formula," he said.
Due to excessive consumption, on March 1 Hong Kong put a regulation in place, limiting the amount of baby formula people from the Chinese mainland can carry when they depart to two cans.
One way to narrow the gap between the government's guarantee and the reaction from society is to further improve information disclosure, Gu said.
"If consumers buy a product and they can check its test reports online, they'll feel more reassured," he said. "We're urging businesses to display the test results of every batch of product on their websites."