Wednesday, January 9, 2013

Pasteurized Milk Strategy for Chinese Dairies

Chinese dairy companies have been shifting their product mix to from their traditionally dominant ultra-high temperature milk products to pasteurized milk as a strategy for regaining consumer confidence.

Pasteurized milk was the featured topic of discussion at a meeting of Chinese dairy company leaders held in Chengdu in December 2012. The Chinese industry early on adopted ultra-high temperature (UHT) technology for sanitizing milk. UHT allows the milk to be stored at room temperature without spoiling, a valuable feature in a market where refrigeration is often unavailable, unreliable or costly. UHT allowed milk production to be diffused in far-flung areas like Inner Mongolia and Heilongjiang, and ship it hundreds of miles to consumer markets.

The melamine incident and other food safety problems have created a consumer confidence crisis in the Chinese dairy industry and companies are looking for ways to restore confidence in their products. Shifting away from UHT to fresh pasteurized milk is a strategy pursued by many Chinese companies. Pasteurized milk production is reportedly growing 35 percent faster than UHT milk. Many companies reportedly are closing down their UHT production lines.

One participant in the meeting suggested that consumer alienation is created by the lack of transparency in milk production, processing and marketing. Companies think shortening the time it takes for milk to travel from the cow to the consumer will help restore confidence in the product's safety and quality. This is probably related to the tendency of Chinese consumers to equate "freshness" with "safety." In surveys, consumers often identify the "sell-by" date or shelf time as one of the most important indicators of milk safety.

The article describing the meeting is vague in its explanation of what pasteurized milk is and its advantage. The alternative to pasteurized milk is only identified as "room temperature" milk and UHT is never mentioned or explained. A company official asked to explain the difference is himself vague. His explanation of pasteurized milk was that "It's the same as the difference between fresh fruit and canned fruit."

An official from the New Hope Company's dairy subsidiary explained their strategy is to build "modern countryside farms" near major cities. They plan to set up 10,000-cow networks of farms in dairy villages within 100 km of a processing plant so milk can get from the milking parlor to the processor within 2 to 5 hours.

How many farmers in a 100-km radius of Beijing, Shanghai or Guangzhou are willing to raise dairy cows?  Will they be willing to bring them into a centralized milking parlor twice a day and then take them home? The poor farmers in remote grasslands and mountainsides eager to raise cows would be excluded from such a system.

Once again there seems to be a disjunct between marketing-focused dairy companies and the realities of producing and marketing milk.

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