Can importing heifers allay food safety concerns in China?
China Huishan Dairy Holdings Company is planning an IPO and The Wall Street Journal anticipates the IPO to raise US$1.3 billion. What is interesting about the company is its strategy to diffuse the concerns in Chinese consumers’ mind about food safety which is particularly significant and also particularly strongly so for the dairy industry following melamine tainted milk tragically sickened thousands of Chinese babies and caused the death of many!
China Huishan imports heifers from Australia and grass from the US to feed them with the intent to allay the safety concerns in consumers’ minds. It is an interesting strategy and it would undoubtedly be interesting to see if it works. Logically, clearly, it should not, since imported cows and visibly imported feed is no guarantee that melamine or other substances cannot be added to the milk before it reaches consumers.
The recent recall of dairy products by New Zealand’s Fonterra Cooperative Group Limited and the seizure by Chinese authorities of dairy products from Westland Milk Products also of New Zealand, for abnormal levels of nitrates, might be a bigger cause to undermine the potential value of using imported heifers and feed. True, the heifers are from Australia and the safety issues are for products from New Zealand, but just as consumers from the West don’t discriminate among emerging markets, as we saw in the past when stock markets across emerging markets were hammered through contagion due to weakness in one subset of emerging markets, Chinese consumers’ sentiments towards milk from heifers from “down under,” irrespective of origin, might be tainted by the concerns regarding safety with dairy products from New Zealand.