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Online Supplement for the Study of "Consolidating Dairy Farming in Cow Complexes after China’s 2008 Milk Crisis? The Case of Greater Beijing"
Release date：2013/4/1 Source： ccap
Online Supplement 1:
Policy Response to the Dairy Scandal Broken Out in September 2008 in China
Policy Response to the Dairy Scandal Broken Out in September 2008 in China
In response to both the consumer and producer crises that were triggered by the Milk Scandal, the government’s top leader, Premiere Wen Jiabao, made a public announcement that addressed the crisis’ many dimensions. In particular, he committed his government to revamping the policy environment, “… the crisis has revealed the shortcomings of government supervision [and policy] … The situation must be rectified immediately” (Lu and Tao, 2009, pg. 1).
In fact, the Wen government kept its promise of rapid policy response. As is often associated with China’s policy making environment, when there is a crisis, the government responds and does so in many different dimensions. Although the total list of policy responses is quite long and the entire food safety regulation is affected in China (Pei, et al., 2011), in the case of the responses directed at producers they can be divided into three main types: Marketing Management; Production Management; and Crisis Income Management.
Marketing Management Policies
Marketing Management Policies were at the heart of one of the government’s most immediate and longer-term restructuring response, since it was not long into the crisis that it was becoming clear that a large share of the contamination was occurring in the collection station/mid-chain marketing agency segment of the supply chain. The first part of the policy response, no doubt, was focused at containing the problem and bringing the crisis to an end on the supply side. On October 10, 2008 the State Council of China issued the “Regulation on the Supervision and Administration of Dairy Product Quality and Safety” (henceforth, the Quality Regulation) to regulate dairy production, processing and marketing. The Quality Regulation was focused mainly on the inspection of all milk buyers and collection stations. To implement the regulation, the Ministry of Agriculture, at the direction of the State Council, sent 150,000 officials to inspect the buying and preprocessing segments of the marketing chain (General Office of China's State Council, 2008). Milk stations that failed inspection were closed down (either permanently or temporarily).
The second part of the Marketing Management Policies, however, was directed at getting the supply chain running again. The government recognized milk collection stations, buyers and transportation firms that passed the inspection with a seal of approval. They immediately instituted a nationwide set of testing standards and offered training to collection station managers so milk procurement could be re-started and revitalized. On November 19, 2008, the State Council announced the “Plan for Rectifying and Revitalizing China's Dairy Industry” (henceforth, the Plan) to stabilize China’s depressed dairy industry.
To execute the Plan, inspectors were placed in the collection stations with the mandate to not only ensure food safety but to begin the process of re-building the marketing linkages between producers and dairy processors. Government agencies also offered subsidized loans and gave grants to collection stations in order to bring their facilities up to standard and enhance milk quality through the marketing chain. Clearly, although China’s marketing management policies initially may have led to disruptions of the supply chain as some milk stations were shut down and dairy farmers found nowhere to sell milk (Barboza, 2008, China Daily, 2009), when officials put their efforts into improving the marketing and handling of those milk stations that passed inspection, a large number of them were renovated, re-invested in and enlarged. The purpose of the Plan, this second part of the Marketing Management Policies, ultimately was to help dairy processing firms get access to higher quality, safe milk from the milk stations and from the large number of smallholder dairy farmers that characterized China’s production environment.
Production Management Policies
Whether warranted or not, the small farmer-dominated, fractured structure of China’s dairy sector is thought to be (at least in part) at fault for the crisis—either directly or indirectly (NDRC, 2008). As a result, the government also took action to change the structure of dairy production in China. In particular, on October 10, 2008 the Hebei government issued the “The Bill for Regulating and Restructuring the Dairy Industry in Hebei province” (henceforth, Hebei Dairy Production Management Policy, 2008). According to the Bill, backyard farming in Hebei was officially put on notice: small, backyard farmers were to be phased out. Farmers were ordered to move their cows into approved complexes—both publicly and privately managed—so their production practices could be monitored and more modern production practices aimed at producing more sanitary, higher quality milk could be implemented.
To implement the Production Management Policies, dairy industry demanded the localities take three actions (Hebei Dairy Production Management Policy, 2008). First, village leaders councils and township governments were supposed to document the location of all dairy cows. Individual households with production in the home (that is, operating as backyard dairy farmers) were supposed to move their cows into the approved dairy complexes. The second part of the Production Management Policies was focused on investing in and otherwise assisting the owners and managers of the dairy complexes to expand and modernize their operations (Hebei Dairy Production Management Policy, 2008). To meet these goals, government agencies also offered subsidized loans and gave grants to the dairy complexes. Finally, efforts were made to create linkages between approved dairy buyers, approved processors and the dairy complexes (Hebei Dairy Production Management Policy, 2008). For example, officials often held meetings to sketch out partnerships between the dairy complexes and processors (and buyers).
References:
Barboza, D. (2008) China's Dairy Farmers Say They Are Victims, vol. 2009.
China Daily. 2009. "4,000 - milk collection stations closed." http://www.chinadaily.com.cn/china/2009-06/03/content_8019447.htm.
General Office of China's State Council. (2008) "Notification on further dispose of infant milk powder incident." http://news.xinhuanet.com/newscenter/2008-09/20/content_10081663.htm.
Lu, J., and Z. Tao. 2009. "Sanlu's Melamine-tainted milk crisis in China " Harvard Business Review (June 11).
NDRC. (2008) "Plan for Rectifying and Revitalizing China's Dairy Industry." National Development and Reform Commission (NDRC), http://www.ndrc.gov.cn/zcfb/zcfbqt/2008qita/W020081120319832687467.pdf.
Pei, X., A. Tandon, A. Alldrick, L. Giorgi, W. Huang, and R. Yang. 2011. "The China melamine milk scandal and its implications for food safety regulation " Food Policy 36(3):412-420
Online Supplement 2:
Dairy Supply Chain After the Dairy Scandal Broken Out in 2008 in China
To procure, transport and process China’s milk, a competitive downstream segment of the dairy industry emerged before the dairy crisis (Lu and Tao, 2009). Foreign firms and large corporations as well as smaller-scale local firms invested in and expanded the capacity of the dairy processing sector. Although industry players with names such as Sanlu, Yili and Mengniu (domestically) as well as Nestle, Fonterra and Danone (foreign) were most prominent, there were also numerous of other firms. As the supply and demand for dairy products expanded, competition within China’s dairy markets intensified. During the 2000s inter-regional competition also became fiercer. As this occurred, dairy firms were pressured to keep costs low, even at the expense of milk quality.
“In the wake of the Milk Scandal, China’s dairy industry consolidated and large, quasi-state dairy companies emerged as the dominant players as the government regulators began to take action. To rescue China’s dairy industry after the dairy scandal was disclosed in September, 2008, government regulators shut down milk collection stations and processing plants, barred collection stations that were not shut down from buying milk and implemented a broad range of new marketing regulations (ChinaNews, 2008). A great number of small dairy processing firms were either closed or merged into large-scale, quasi-state companies (Xinhua News, 2008). Large quasi-state dairy firms were asked to begin to take the lead in the government new safety supervision program in every segment of the supply chain—from procurement to processing. Some (though on a limited basis) even began to invest in their own farms (MBAChina, 2010).
“To strengthen the compliance and supervision of the safety of raw milk at the farm gate, large quasi-state companies sought ways to more effectively coordinate the supply chain vertically. As such, they were willing and encouraged (by regulators) to begin to create close ties with the newly emerging cow complexes. Our survey results show that after the dairy crisis cow complexes in our sample sold all (100%) of their milk to large quasi-state companies (including, Yili, Mengniu, and Sanyuan). As part of these purchasing arrangements, the large quasi-state dairy companies sent on-site supervision personell into five (out of six) of the sample cow complexes. It was these processor agents that were responsible for testing the raw milk for safety (anti-biotics) and quality (fat and protein content).
“Our regression results also reveal an association between dairy companies and the emergence of cow complexes. The coefficients in our empirical work on the “distance to the nearest dairy processers” variable are negative and significant (not shown for brevity). These signs and levels of statistical significance imply that, ceteris paribus, the closer a village is to a dairy processing firm, the larger number of dairy farmers in cow complexes. Hence, it is in this way that we can see from our data and our reading of the literature that after the dairy crisis, large quasi-state dairy companies started to source raw milk in ways that gave them more control over the supply chain. It is in this way, too, that cow complexes became a viable institutional form, since they facilitated the procurement of relatively large volumes of product while also allowing for a way to inspect for safety and quality.”
Reference:
ChinaNews. (2008) "102 Milk stations were shut down and another 33 were suspended in Hebei Province [(In Chinese) hebeisheng qudi 102 wenti naizhan; tingye zhengdun 33 ge]." Oct. 7th. http://www.chinanews.com/cj/cyzh/news/2008/10-07/1402932.shtml.
MBAChina. (2010) "Invest own dairy farm? New production mode after China's dairy crisis."
Xinhua News. (2008) "China central gov't to subsidize dairy farmers after tainted milk scandal." Oct. 4. http://english.sina.com/china/2008/1004/189793.html.
Online Supplement 3:
Characteristics of Villages With and Without Cow Complexes in Greater Beijing
Table 1 tabulates and compares several village characteristics and contains several relevant findings. Cow complexes seem to be established in villages in which there were large numbers of dairy farmers before the milk crisis. The average number of pre-crisis dairy farmers in villages that established cow complexes after the milk crisis was 96. This figure was much larger than that in villages without a cow complex (14). Besides the scale of dairy farming, there were three other systematic differences between villages with and without cow complexes: the areas of cultivated sown to maize; road access to dairy processing facilities; and the number of villagers working in government related to animal husbandry.
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Table 1. Characteristics of villages with and without cow complexes.
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Had cow complexes in Sept. 2010
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Yes
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No
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Sample of villages
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6
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19
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Average number of dairy farmers in the village before the milk crisis in 2008
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96***
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14
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Area sown to maize in village in 2008 (1000 hectare)
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0.15**
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0.07
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Average net income per capita in 2008 (1000 yuan)
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2.6
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3.1
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Distance to the nearest dairy processor in 2008 (km)
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17.4
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27.2
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Distance to the nearest county road in 2008 (km)
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0.58
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1.29
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The number of villagers working in government related to animal husbandry
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0.50
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0.32
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Note: *** and **denote statistically significant at 1% and 5% level.
Source: Authors’ survey.
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