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Big blow for dairy industry

(China Daily)
Updated: 2008-09-22 09:21

Customers return tainted milk powder at a supermarket in Hefei, Anhui province last week. [China Daily]

Melamine-tainted powdered and liquid milk has triggered a series of negative effects for China's dairy industry, and is expected to be a potentially fatal blow for many domestic dairy businesses.

Inner Mongolia Yili Industrial Group, China's largest maker of dairy products, fell to the lowest in more than two years in Shanghai trading after rival Sanlu Group Co's products were tainted by the chemical melamine.

As of Thursday, Yili fell to 10.88 yuan ($1.59) and Bright Dairy &Food was down to 4.07 yuan. Both were shut for trading on Friday.

Yili had fallen as much as 10 percent, the daily limit, and traded down 5.5 percent to 13.50 yuan at 11:29 am local time last Tuesday. That's the lowest since March, 2006. Bright Dairy &Food Co fell by as much as 10 percent to 4.58 yuan, and was at 4.76 yuan.

Contaminated milk powder made by Sanlu was linked to at least four child deaths and more than 6,244 infants who have been diagnosed with various urinary tract problems, including kidney stones, by last Friday. Consumers may cut purchases of domestic infant powder and switch to imports, Morgan Stanley says.

China's biggest dairy makers, including China Mengniu Dairy Co, Inner Mongolia Yili Industrial Group and Sanlu Group Co were among those with products linked to tainted milk. Mengniu stopped trading last Tuesday. Melamine was first found in Sanlu's products.

China Mengniu Dairy Co fell as much as 11 percent to HK$17.96 ($2.31) last Tuesday in Hong Kong before it closed to trading.

The General Administration of Quality Supervision, Inspection and Quarantine said last Thursday that the tainted product crisis has extended to liquid milk as its test results show nearly 10 percent of samples taken from Mengniu and Yili contained up to 8.4 milligrams of melamine per kilogram. Liquid milk from Shanghai-based Bright Dairy also showed melamine contamination.

The Chinese dairy market was worth $19 billion last year, Merrill Lynch &Co says, citing Euromonitor data.

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