» Biz Commentary
Mengniu toxin milks dry public trust
IT may be the straw that breaks the camel's back - or in this case, the cow's.
Recent revelations that Mengniu, China's largest dairy producer, has found moldy foodstuff feed to its cows is the cause for excessive toxin levels in milk, have destroyed whatever vestiges of public goodwill remained after a series of scandals at the company.
On December 24, China's General Administration of Quality Supervision, Inspection and Quarantine said on its website that a random sampling found above-standard amounts of a cancer-causing toxin in batches of milk products from Mengniu and from closely held Fujian Changfu Dairy Industry Group Co.
Inner Mongolia based-Mengniu, a publicly listed company, did all the requisite apologies to consumers and gave assurances that all contaminated milk has been destroyed and no tainted products were on shop shelves.
The mea culpa apparently didn't thwart public fury.
Condemnation of Mengniu dominated online sites, with Internet users calling for a boycott of all Mengniu products, and hackers attacking the company's official website, leaving bitter and irate commentary: "Mengniu once made the Chinese people strong and proud, but now it's doing harm to its own people."
It's hard to see how Mengniu can rebuild public trust after so many widespread food scandals.
In November 2011, quality monitors in the southern Chinese province of Guangdong found unacceptably high levels of bacteria in Mengniu ice cream. Six months earlier, 251 pupils fell ill after drinking Mengniu milk at school in the northwestern province of Shaanxi.
Back in 2008, the company was embroiled in the granddaddy of food-safety scandals. Infant formula from brands including Mengniu was found to be tainted with the industrial chemical melamine, killing six children and sickening about 300,000.
The trust crisis affects not only Mengniu, but also the whole domestic dairy industry. Competitors don't seem to be benefiting from Mengniu's woes.
On December 26, the first trading day following the latest Mengniu scandal, shares in arch rival Yili Industrial Group plunged 5.4 percent to 19.79 yuan (US$3.12) in Shanghai, while the benchmark Shanghai Composite Index lost 0.67 percent that day.
What investors fear, of course, is that Mengniu is not an isolated villain in the dairy industry. Hong Kong-listed Mengniu saw its shares dive 24 percent when trading resumed after the holidays in Hong Kong on December 28. It was the biggest drop in the shares in three years, wiping HK$11 billion (US$1.3 billion) from the company's value in one day alone. Its shares continued to slide in the last two trading days of 2011.
Analysts from some investment banks have cut their ratings on Mengniu.
Deutsche Bank downgraded Mengniu from "buy" to "hold," saying its earnings growth is likely to be affected by the scandal. The bank cut the target price of Mengniu from HK$31.50 to HK$22.60. Mengniu closed at HK$19.70 yesterday.
"Dwindling consumer confidence in Mengniu's products is likely to have an impact on near-term sales," Deutsche Bank's analysts Feng Chen and Mable Wong wrote in a report.
Goldman Sachs, which kept its "neutral" rating on the stock, said risks to Mengniu's reputation could lead to lower sales, higher promotional spending and impairment charges.
I used to be a Mengniu fan years ago. But nowadays, I shun all its products, from milk at breakfast to the mouth-watering ice cream that used to relieve the heat of a Shanghai summer.
Like most consumers, I won't buy brands I can't trust. But it's not only Mengniu generating the mistrust. Public agencies that are supposed to be safeguarding human health also come in for some hard scrutiny.
I still remember the controversy kicked up in late November by a People's Daily report indicating that an industry standard imposing strict limits on levels of bacteria in raw milk could be watered down at the last minute by the intervention of dairy producers.
Public health experts and officials had agreed that the baseline bacteria count in raw milk should be 500,000 cells per milliliter, but that was increased to 2 million in the end, according to the report, which disclosed more details on how the 2010 new standard was made.
The new standard has come under fire from both consumers and the media since its publication. It is 20 times higher than raw milk standards in Europe and the United States. The November report revived public debate about government standards and monitoring.
The new standards were actually first drafted by some domestic dairy manufacturers, the report said, citing Zeng Shouying, an expert who has participated in drafting China's dairy standards since 1962.
It was reported that Mengniu drafted the first version of the standard for pasteurized milk, Yili drafted that for raw milk and Shanghai-based Bright Dairy handled that for yogurt. Though the Ministry of Health denied claims that the industry standard was hijacked by major producers in a follow-up People's Daily report, public was still not satisfied.
Does anyone really think such shenanigans will instill consumers' confidence about the domestic milk products on supermarket shelves? Definitely not. One only has to look at the prospering sales of more expensive imported milk products to see the public's verdict.
We all know that a dairy giant like Mengniu has deep pockets and will no doubt launch a media blitz aimed at restoring its good name. But in the end, it's the products themselves and not razzle-dazzle advertising claims that count when shoppers decide what is safe to put into their bodies.