Milk Powder and China's self-confidence

Self-confidence of a Great Nation Shattered by Milk Powder.
By He Qinglian on March 2, 2013.

Original article in Chinese: 

At a time when media in China are brooding over what to dig up from the “two sessions” to report as news stories, the country's milk powder has again become a hot topic of overseas Chinese media. March 1 is the first day Hong Kong's new law to put a cap on the amount of milk powder travelers could bring out of the city. That new law stipulates that unless with permit, each individual shall not on departure carry milk powder of more than 1.8 kg in net weight, the equivalent of two cans of infant formula. On this very day, ten individuals were arrested for infringing the law. On March 2, Lu Xinhua, spokesperson for the Chinese People's Political Consultative Conference (CPPCC), made a claim at a CPPCC news conference that 99% of milk powder produced in mainland China meet quality standard.

These two news stories really made one feel thunderstruck. How protracted the buying frenzy must be that the government of Hong Kong has to disregard the fact that the city's a part of China and promulgate a legislation that hurts the feelings of the mainland Chinese? How big in scale this has been that the Chinese government would solemnly declare at a CPPCC news conference that domestic milk powder is safe and reliable? And what sort of impetus it is that Chinese consumers would risk being jailed for a few cans of milk powder?

Hilarious this may be, it is no joking matter. This small issue of milk powder actually reflects many big problems today's China faces, among them include government's credibility, vendors' reputation, the food chain formed from environmental pollution. The followings is my tracking and analysis of the milk powder panic buying.

A sad fact: it is harder for China to produce milk powder that meet standards than to manufacture missiles.

When the Sanlu tainted milk powder incident came to light in 2008, the whole country was enraged. Some raised the question: “today, we have sent satellites and space shuttles up to the sky, why are we just not able to produce infant formula that meet standards?”

After chains upon chains of digging, the milk powder producers said the milk did not satisfy requirements because dairy farmers adulterated the raw materials. The dairy farmers claimed innocent and stated they definitely did not do that; it could all be attributed to the animal feeds. And from the animal feeds problem came the last issue the Chinese government would want people to discuss: the land contamination issue. And the blaming game stopped here. I remember there was a set of cartoons that illustrated precisely the whole process of this blaming game. Since the extent of land contamination across the country was not disclosed back then, the anger of the public was mainly directed at the manufacturers.

Soil Contamination.

It was certain that the Chinese government did not want to see this discussion continue. As agricultural produces grown on contaminated soil—in particular that contaminated by heavy metal—would carry a variety of carcinogens. The government did not want to cause public panic. Oh poor cows, they have been fed with these feeds from the day of birth. How could they produce milk that meets standards? It had also came to my attention that during the wave of intensive reports of tainted milk scandals, quality problems were found in products of Nestle and other foreign brands that were made locally in China using the same source of milk as the Chinese manufacturers.

According to my investigation, China imports pasture too. For instance, alfalfa is imported from California. But those are surely not ordinary cows; they are privilege pasture for privilege cows.

Some people may ask: do we not have Inner Mongolia grasslands? The answer is: the size of degraded grasslands in Inner Mongolia has already reached 38.67 hectares, accounting for more than 60% of the available grasslands. The degradation area of the Ordos grassland reaches as high as 68%. Just look at Brazil and one would understand the sorry state of Chinese cows. Brazil, known as the world’s bread basket, has 225 million hectares of grasslands. It has a developed grassland animal husbandry, and the livestock is predominantly cattle, chicken, and pigs.

In Brazil, the federal government enacted environment protection legislation and formulated policies to set forth the requirement that the use of environment resources like soil, subsoil, water and air be planned and supervised, that a certain percentage of land be made permanent preservation areas, and the number of cows in Brazil is kept at about 200 million. On average each cattle could forage on nearly a hectare of land.

This is the reason it is much harder for China to produce milk that meets standards than to manufacture missiles.

The Awkward Situation of Chinese milk powder manufacturers.

Inside China there were two reports on the state of the country’s powdered milk production: “Scale of domestic powdered milk production tops the world, yet foreign brands high-end monopoly stays unshakable” and “Domestic milk production 30% more than the imports, where is the way out?

These two reports mentioned several key points. 

For starters, the milk source problem of Chinese infant formula producers. Those articles did not go into detail regarding the food chain of tainted corps grown on contaminated soil. They did, however, state that other countries generally have large areas of natural grasslands that are far away from industrial pollution, with few people and the quality of air and of water are relatively guaranteed. Sickness among cows is of low prevalence, and, with strict supervision of production in place, the quality of the products is assured. Second, the Chinese milk powder manufacturers strive to tops the world in the scale of production. However, the scale of dairy farmers is small and the feeding cost is 30% higher than their foreign counterparts, thus the price of fresh milk is high and as a result, the production cost of domestic milk powder is higher, yet they are unpopular even though their retail price is lower than foreign brands.

The Chinese's Frenzied Purchase of Milk Powder Overseas.

With respect to the milk powder manufacturing industry that aspires to contend for the world's top in the production scale, the Chinese government would surely support it. The problem is, consumers lost confidence in domestic milk powder after the melamine scandal. Despite the repeated claims from the Dairy Industry Association that “the quality of domestic milk powder today is the best of all times, a world wonder still emerges. While domestic milk powder is unsalable, frenzied buying of infant formula took place in Hong Kong and elsewhere. In recent years, mainland Chinese snapping up powdered milk in Hong Kong had continually made headlines in the city's media. That did not just give rise to the new industry of overseas milk powder purchasing service that cater for the Chinese people, but also results in such a weird law in Hong Kong.

It is probable that since its inception, Hong Kong has never seen such an odd phenomenon: infant formula in short supply because they got snapped up by mainland Chinese. Some individual(s) created two set of images: “Grand Showcase of Mainland Chinese Stockpiling Milk Powder” and “World Map of Chinese raids to Seize Powdered Milk”. During the three years of the Great Famine, the people of Hong Kong generously helped their compatriots in mainland China; now the city is actually passing a legislation to limit mainlanders’ purchase of milk powder. From this one could see the intensity of the conflict triggered by milk powder shortage.
Why did Hong Kong introduce this legislation to restrict milk powder purchase?

Before the city made amendments to the “Import and Export (General) Regulations” (Cap. 60 subsidiary legislation A), the government had sought public opinions. During the consultation period, a total of 15 written submissions were received from groups such as trading companies and public interest groups. They basically were opposed to that legislation. Yet in the end the law that could be described as absurd was nevertheless introduced. Why?

Probable Beijing factor in Hong Kong's new law.

If it was because citizens in Hong Kong complained that milk powder got snapped up by mainland Chinese parallel exporters that the government enacted the legislation to protect the interests of the locals. This does not seem like the typical behavior of the government of Hong Kong as this is not the only area Hong Kong residents are disgruntled with mainland China. For example, their rejection against mainland pregnant women giving birth in Hong Kong and using the city’s medical care resources was more intense than the frenzied buying of milk powder, yet the Hong Kong Hospital Authority Assembly merely passed a resolution that Hong Kong public hospitals stop accepting parturition appointments of non-local pregnant women, and suggested that the charges for non-appointed parturition be raised from HK $48,000 to HK $90,000. It was truly difficult to comprehend that the insignificant issue of frenzied purchase of milk powder became the cause of this legislation.

Some others said that it was due to the milk rationing system imposed in the EU. In October 2012, Austria, Ireland, the Netherlands, Germany, Cyprus and Luxembourg were fined 79 million euros because their milk production in the annual 2011/2012 exceeded their respective quotas. Thus there is limit as to the amount of milk powder Hong Kong could import. The city therefore implemented the law to restrict the amount of milk powder visitors could carry when they depart from Hong Kong.

However, traders in Hong Kong should be aware of the market supply and demand relation. Why did they plea the government of Hong Kong not to pass that legislation?
After taking these factors into consideration, I guess the only plausible reason to explain this is that in a bid to protect dairy industry in mainland China (the world’s no. 1, with astronomical amount of investment in it), Beijing pressurizes the government of Hong Kong to restrict mainland Chinese from making purchase of milk powder in Hong Kong, so as to make the poor mainland Chinese people buy domestic milk powder, in which they have no confidence. In the last ten years or so, the phenomenon of China’s interest groups hijacking the country—namely, giant industrial and business groups lobbied the government to change its policies—has become fairly conspicuous. Given that Hong Kong is following closely the orders from Beijing, it is not impossible that the city’s government satisfied the wishes of the Central government under the pressure from Beijing.

It is indeed absurd that China, a country that has long become the second largest economy, actually finds itself unable to satisfy the safety needs the local mothers have for milk powder. Viewed from any angles, this is a tragedy of China, an outcome that derived from the superimposition of countless political farces. When the country’s mothers could not be assured of even a tiny can of infant formula, can Beijing’s dream of becoming a “great power” come true?