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Scare may provide toehold for Chinese dairy industry

Wednesday, August 7, 2013
Scare may provide toehold for Chinese dairy industry

Fonterra's botulism scare may provide an opportunity for the Chinese government to bolster the country’s domestic manufacturers, says Massey University marketing specialist Associate Professor Henry Chung.

Dr Chung, who has studied the Chinese market for more than 20 years, says New Zealand’s dairy products have long enjoyed a premium market position there and the growing middle class in China has been happy to pay the price for what it considers quality products. But now Fonterra is in danger of losing its premium status.

“There is plenty of evidence to show that Chinese consumers are demanding higher quality products all the time,” Dr Chung says. “These consumers are happy to pay more for New Zealand-manufactured dairy products because they are considered safer, with superior supply chains and production processes.

“The current infant formula scare is the second issue Fonterra has had in China this year, and Chinese consumers are very sensitive to any possible contamination of milk products. It would not be surprising if they started to look around to see what other product options they have.”

Dr Chung says the question mark over Fonterra’s processes also offers the Chinese government an opportunity to promote its domestic industry.

“We have already seen the state-run media broadcasting many stories criticising New Zealand and the purity of its dairy products. I think they are working to position Chinese manufacturers as being just as safe and good as foreign suppliers.

“I would also not be surprised if the Chinese government used this event to introduce stronger controls over foreign, imported products. Unfortunately for Fonterra, this latest scare has come at a time when the Chinese government is looking to develop its own domestic market.”

He says Fonterra chief executive Theo Spierings has, so far, been saying all the right things. “I think he now has a couple of days to deliver on those promises. If Fonterra wants to minimise the impact of this crisis, they need prove to Chinese consumers that they have thoroughly reviewed their systems and their procedures are now completely safe.

“If they can do that quickly, I think there is every chance they will continue to be considered a premium brand in China. But if this process takes too long or there are any further issues in the immediate future, then domestic manufacturers may gain a foothold.”

ENDS

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