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China Dairy Industry Internal Standards Raising the Bar on Quality and Safety

  •   8 Oct 2018
  •    Lennie Tao
  •   465  Views
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    Takehome:

    • On Sept. 17, Feihe Dairy, publicized the implementation of their own internal enterprise milk powder quality standard. This standard sets a significantly higher quality threshold compared to Chinese national standards.

    On Sept. 17, Cai Fangliang, president of Feihe Dairy, publicized Feihe's Standard for Fresh Milk Powder, standardizing the company's use of fresh raw milk as the raw material used to make powdered milk. Wang Jiaqi, Director of China's Ministry of Agriculture and Rural Affairs (MOARA) Milk and Dairy Product Inspection Center (Beijing), appreciated Feihe's new standard for freshness. He said, "China's dairy industry has enough bandwidth to develop much fresher and superior products which leverage the heightened technical capacities of the industries and larger enterprise and help domestic interests bridge the gap with our international competitors".

    Feihe developed its new standard in cooperation with China National Institute of Standardization. Leading companies in this industry, like Mengniu and Yili, have already recognized the importance of developing more demanding internal standards. Zhang Xiaogang, former president of ISO, said, "Standards have become hugely significant in forging a competitive market advantage and are increasingly shaping global trade. On a national and international level both countries and enterprise alike can formulate higher quality standards to protect consumers and safeguard the domestic interests".

    The rationale for development of more stringent enterprise internal standards

    Lack of variability in the quality and safety of domestically manufactured milk products circulating on China's market, stymies progress in developing the technical capacities of the industry and also consumer's ability to purchase higher quality and safer products. Chinese dairy enterprises, faced with the prospect of mounting inward trade pressures and a rapidly changing socioeconomic landscape, have increasingly looked to raise the bar on their production and technical capacities and ultimately the safety and quality of their products. This has precipitated the era of standard competition amongst China's domestic dairy enterprises.

    The Era of Standard Competition in China's Domestic Dairy Sector

    On June 11th, 2018, the State Council released a circular, which aims to revive the milk industry and improve the quality of dairy products. This circular noted that the government encouraged enterprises to use fresh raw milk as raw material and build their own milk source bases.

    On Sept. 20th, the State Council released new measures to drive domestic consumption. According to the document, key standards for products and services should be fully established to improve their quality and better satisfy consumers. Another key focus was a call to intensify efforts to improve quality and safety standards.

    Dairy Standards in China

    Within China's plan, to revive its dairy industry is the key focus of encouraging enterprise to develop their own standards. There are three kinds of dairy standards in China: national standard, industry standard and enterprise standard.

    National standards provide the most fundamental reference for industry and mandate the basic quality, safety and technical standards during raw material sourcing, production, labeling, post market supervision, etc. and is designed to ensure full product lifecycle oversight and comprehensive quality and safety assurance throughout the supply chain.

    On Sept. 10th, NHC opened new drafts of China's national infant formula food safety standards to public consultation. These new drafts set more stringent market entry requirements but still only offer basic constraints on product formulation and ingredient selection and many of the stipulated indexes and threshold articulated within these standards fall below global best practices.

    In China some of the larger enterprises implement their own standards which are more stringent than China's national standards. According to the president of Yili, the enterprise standard of Yili is much stricter than national standard.

    Other Measures Used to Improve Market Stratification and Differentiate Products

    1. Packaging

    Some enterprises may hold the idea that if they have used one package design for decades, once they change the design, consumers may refuse to accept it. Kedi Dairy is a prime example of the "repackaging effect". With the idea of "visible safety", it uses a transparent package.

    2. Concept

    New concepts are often big successes and goat's milk is a good example which is now becoming more and more popular. In 2008, the market share of goat milk in China was only around RMB 300 million yuan. It reached RMB 3.5 billion yuan in 2014, and surpassed RMB 5 billion yuan in 2015.

    3. Value

    It is mainly based on the nutritional value. For example, some top tier enterprises raised the protein content of their products to 3.3%. In addition, the idea of "value added dairy" is increasingly important, which implies dairy products with enhanced nutritional profile which can confer health benefits in and above that offered by traditional dairy products. Fortified dairy, lactose free, variant protein profile, addition of pro and prebiotic etc.

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