Radical Shifts in China's Milk Market

By staff reporter ETHEL LU

    THE recent melamine scandal has bitten deep into China's milk industry, smearing a number of reputed domestic names and ruining the companies. Sanlu, the principal company implicated in the scandal, now faces bankruptcy. It is, however, a rule of the market that as some players fall, others rise. So in the wake of the turmoil, China's diary market is undergoing an extensive shake-up.

    Beijing-based Sanyuan is without doubt the biggest winner in the tainted milk scandal. Once the news came out that its milk was free of melamine, a noxious chemical detected in products of many prominent domestic companies such as Sanlu, Mengniu and Yili, the demand for Sanyuan milk skyrocketed. Overnight demand reached eight times the firm's production capacity. Its stock price rose by 64.4 percent in six days, from RMB 3.4 to RMB 5.59, in contrast to the sharp drops experienced by competitors.

    Little known outside Beijing and its environs, Sanyuan had long lived under the shadow of giants like Sanlu, Yili, Mengniu and Bright, whose sales networks cover the whole nation. Now Sanyuan also enjoys national fame. Another rising star is Guangzhou's Kowloon Dairy Food Products Co., Ltd. Its four production lines have been running at full capacity since the melamine scandal. What's more, it was selected as the new supplier for Starbucks in China.

    The situation of the former dairy giants is a stark contrast. Mengniu and Yili saw their orders shrivel by more than 80 percent in the ten days following the disclosure of melamine contamination on September 11. Though later batches of their products tested negative, it seems customers will not be won back easily.

Sanlu's tainted powered milk was dumped in Shijiazhuang, Hebei.