Food Safety Scandals Could Benefit Foreign Firms

With food safety concerns still dogging local enterprises, multinationals including Nestle and Danone look set to benefit, as Chinese consumers put more trust in foreign brands, Bloomberg reported.

Food safety has been big in the news again recently after regulators last month found toxins in milk produced by local dairy major Mengniu. Last year consumers were angered by the revelation that an additive meant to induce lean meat in had been found in products made by China’s top pork producer, Henan Shuanghui. And most still can’t forget the 2008 melamine scandal that killed six babies.

Consumers “will immediately shift to foreign brands when they learn about the Mengniu incident because they have stronger trust in overseas companies,” CSC Securities analyst Tracy Sun told Bloomberg. Jason Ding, vice president at management consultancy Roland Berger, said foreign brands are better at maintaining product safety, while for many local firms, quality has become a “secondary” concern.

Nestle has close to 100 people in testing and monitoring at its Shuangcheng factory, which it is expanding, and has a “very sophisticated” test capability in its factories, a company spokesman told Bloomberg. Food maker Heinz has started selling baby food in pouches, which are cheaper than jars, and expects sales to double during the next three years. Mead Johnson had a 12 per cent share of China’s milk formula market in 2010, and saw its China sales more than double from 2008-2012.

According to a China Market Research survey conducted last year, food and product safety is the biggest concern for consumers, ahead of medical care or education costs.  “The food supply chain in China is a mess and smart companies will benefit by ensuring the best quality,” Jessica Lo, managing director at China Market Research, told Bloomberg.

While foreign companies can expect to gain market share in milk powder, baby food, and other similar product categories, local brands will dominate the liquid milk market despite safety concerns because it’s too expensive for foreign brands to import milk.

By Bei Hua

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