Tainted milk won’t taint Mengniu long term, say analysts

By Jennifer Phang

- Last updated on GMT

Related tags 2008 chinese milk scandal

Megniu's milk scandal won't impact long-term
Megniu's milk scandal won't impact long-term
The aflatoxin-tainted milk scandal that has gripped Mengniu Dairy since the end of 2011 is damaging short term, but China’s biggest dairy is unlikely to suffer long term damage in its sales and share price, say analysts.

Since news of its tainted milk surfaced in media reports just before Christmas, Mengniu’s share price plunged more than 30% over the next two days. Sales were reportedly down by 70% in supermarkets as consumers avoided the brand.

This was despite the fact that Mengniu issued two company statements confirming the tainted products had been “sealed and destroyed” ​before appearing on any retail shelves.

In the latest developments aflatoxin has also been found in cooking oils, prompting the government to recall the products and cease production at the plants in question.

Despite a media storm around the share crash, anti-Mengniu groups and hacking of the Mengniu website, food analysts said the incident would not be as damaging to Mengniu as the 2008 melamine scandal was to Fonterra-Sanlu.

Flexible treatment

LianFang Chen, a senior analyst and dairy specialist with Beijing Orient Agribusiness Consultants, told FoodNavigator-Asia consumers were quick to forget such issues, especially as the government has not condemned Mengniu.

“The authorities have been more flexible in their treatment of Mengniu as they do not wish to create a big scene as in the Sanlu melamine poisoning incident,” ​said Chen.

That scandal saw more than 300,000 Chinese babies hospitalised, and 36 arrests made from Sanlu and other implicated parties including government officials.

Mengniu is the largest dairy producer in China with over 20 production plants. It raked in RMB18.5 billion (US$2.9 billion) revenues for the first half of 2011. Profits stood at RMB1.4bn (US$220 million).

Mengniu is listed on the Hong Kong Stock Exchange (HKEX) and the share was trading at only HK$18.20 on December 29, 2011. After the announcements by Mengniu’s board of directors, the stock crept back up to close at HK$20.15 on Jan 4 2012.

James Roy, senior analyst with China Market Research Group, concurred that Mengniu’s setback is only temporary. He told FoodNavigator-Asia: “The current situation is a big hit to Mengniu’s image but they are going to recover from this.”

He said both Mengniu’s share price and sales would return to normal in six months, especially if tests from the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) backed the quality of its milk going forward.

He observed Mengniu has not been condemned by the government as Sanlu was because of the lack of great numbers of adverse events and the fact the contamination appears accidental.

Sanlu’s melamine contamination was a case of economically motivated adulteration.

AQSIQ, reacting to calls for stricter government action, posted on its website that it, “requires local authorities to continue to uphold quality supervision and inspection of liquid milk and if aflatoxin M1 is found, it must be disposed of immediately”.

The problem for Mengniu began in October last year when AQSIQ found a batch of its milk products contained aflatoxin M1 way in excess of permitted levels.

Mouldy and stale farm feeds

The milk was produced at its Sichuan Meishan farm. The company stated that the poison found in the products was due to “mouldy and stale”​ farm feeds.

But subsequent testing by the State Administration of Quality Supervision has revealed products containing no excess levels of aflatoxin M1.

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