China Cries Over Poisoned Milk

Little over a month ago, melamine was known as the material used to make unbreakable plates and as an industrial additive. But since then it has gained considerable fame as a chemical which, when added to milk, boosts its protein level at the cost of damaging the consumer’s kidneys. China's dairy farmers, eager to boost their milk sales, have been watering down their milk and then lacing it with melamine so that tests show the same protein content as unwatered milk.

Products laced with the chemical are directly responsible for the death of four babies and for putting more than 10,000 in hospital, at last count. And the impact is mushrooming — not only have more and more companies been found guilty of selling contaminated milk, but it has now spread beyond milk to other products that include dairy, such as chocolate. And the ramifications seem set to shake the foundations of China's food and beverage sector.

One potential outcome, observers say, is a renewed consolidation in the food and beverage sector that will benefit the larger producers. And having watched the damage done to its reputation by the latest scare, the Chinese government may also become less averse to the involvement of foreign investment in the industry.

According to a recent J.P. Morgan research report, melamine-contaminated milk has been present in China's dairy industry for the past three to four years and has contributed to the rapid development of the market. It estimates that the production of liquid milk grew at a compound annual growth rate of 45 percent from 2000 through 2006, while production volumes of raw milk increased by a CAGR of only 20 percent in the same period. "When fake raw milk is eliminated from the system, the decline in raw materials itself should reduce production volume by at least 50 percent in the sector, in our view," the report says.

Source: FinanceAsia.com