Tuesday, January 20, 2009

Milk Safety: Control or Incentives

A dairy industry conference was held in Beijing on January 19 to “discuss” experiences and measures to address food safety problems.

Although the conference was held by the “China Dairy Industry Association,” the head of the Ministry of Agriculture’s (MOA) Livestock Industry Office is listed as the first chairperson, followed by the head of the dairy association. The MOA official’s comments are featured in a paragraph followed by a paragraph of comments by the dairy industry association head. Listing the MOA official first is a reminder of government's centrality in food safety in China. (In many industries, even the “industry association” itself is a thinly disguised government planning bureau.) Representatives of the big dairy companies and regional associations were also present but their views are not revealed.

Among dairy companies there have been two approaches to tightening up their supply chains. Guangming, Sanyuan, Yinqiao, and Flying Goose have concentrated on developing their own large-scale farms. Others (Yili, Mengniu, Wandashan) have been requiring farmers to keep their cows in village “production zones.” Companies have posted 10,000 supervisory or inspection persons--one at every milk purchasing station. Milk is tested at the station, tested again when it enters the processing plant, and records are kept.

The MOA official emphasized a slogan of “Three Firm Unmovables” that include a long list of measures: increase the scale, standardization, and productivity of dairy farming, test milk, track and monitor cattle, make sure they’re vaccinated, collect data, and do a good job on long-range industry planning. The Chinese government’s solution is typically to come up with a slogan and throw more resources, control and planning at the problem.

While the MOA comments imply that farmers need to be bossed around to make sure they tow the line, the industry association leader focuses more on the interests of dairy farmers and their incentives. The milk powder tragedy was rooted in wild fluctuations in dairy prices, chaotic competition in supply chains, and thin margins that encouraged watering down milk. He calls for perfecting the “milk price negotiation system,” strict enforcement of milk contracting regulations, stabilization of milk procurement, and making sure that farmers get a price premium for good quality milk. The comments are brief, but seem to point to the need to ensure that farmers have incentives to produce a good quality product.

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