Cold comfort for farmers as milk sours

The dairy industry faces more upheaval, reports Wei Tian from Hebei province.

“If you hate someone, send him to breed cows” is now a black joke widespread among Qiao Dongming and his fellow dairy farmers at Wangshengtan, a livestock base in Hebei province, 160 kilometers from Beijing.

The farm in Qingbao village in Baoding, Hebei, currently has 800 cows, with 30 dairy farmers like Qiao, who whip their cattle into the milking parlor in the base every morning and evening, producing about 8,000 liters of fresh milk each day for Inner Mongolia Yili Industrial Group Co Ltd, a leading Chinese dairy producer.

If things go well, Qiao, who owns more than 100 cows, can make between 8,000 ($1,240) and 10,000 yuan month, more than most white-collar workers make in China’s capital city. In terms of asset value, Qiao’s 100 cows, costing 10,000 yuan each, make him a millionaire.

With flexible working hours and seemingly decent pay, many would view his Arcadian life as a dream job. However, Qiao himself would absolutely disagree.

Rise of controversy

The current standard of Chinese dairy products was recently denounced as the “worst in the world” by Wang Dingmian, the chairman of the Guangzhou Dairy Association, because of the low protein content and high levels of bacteria allowed by the official regulations.

Wang’s comments came under fire from Nadamude, the secretary-general of the Dairy Association of the Inner Mongolia autonomous region, who claimed that if the standards of dairy products are raised, the resultant rise in costs would mean that 70 percent of dairy farmers would have to sell their cows.

The debate is again arousing nationwide discussion on whether or not to improve the criteria. But for Qiao, this will soon be none of his business, as he is planning to sell his cows, and quit the job he has held for more than four years.

“Actually I have never made a profit in recent years,” Qiao said.

“The sum of 10,000 yuan a month may seem like quite an decent amount, but it’s nothing compared with what I’ve lost during the past few years,” he said.

The 34-year-old entered the dairy industry in 2007, and has experienced nearly all of the major “turbulence” in the industry since then, including the 2008 scandal – when milk tainted with melamine entered the food chain – and the spread of foot-and-mouth disease in 2009.

When the melamine scandal broke, all milk collection was suspended overnight, Qiao said. With demand dropping sharply, he had to dispose of tens of thousands of liters of milk.

During the foot-and-mouth outbreak, nearly half of the herd at Wangshengtan farm was affected, leading to the deaths of more than 40 of Qiao’s cows. Some farmers managed to sell their non-infected cows at a “beef” price, which is lower than they’d fetch as livestock. Others had to watch the dead cows piling up, Qiao remembered.

Even during “peacetime”, Qiao has to be vigilant to prevent his cows from contracting Bovine Mastitis, which is a common disease in the herd.

“Once a cow is infected, its milk cannot be approved for collection for at least a year, and the cows become a pure waste of money,” Qiao said, explaining that even under normal circumstances only 30 to 40 of his 100 cows actually produce milk, when calves and those suffering from mastitis are taken into account.

“I now understand why old people say ‘better to grow crops with roots than to breed cattle with mouths’,” said Qiao. “Cattle-breeding is just too risky a business.

“After all we’ve been through over the years, any dairy farmer who has persisted until now should be regarded as a hero of the industry,” Qiao said.

But Qiao and other dairy farmers weren’t tricked into joining the cattle-raising business, neither are they doing it to be heroic. There was once a time when breeding cows was a truly rewarding job.

Past glory

Before the year 2000, most of the villagers in Qingbao were croppers. But the success of the dairy industry, as a result of the nation’s rising standard of living, encouraged many of them to abandon their farmland and join the diary business.

“Soon 80 percent of the families were breeding cows,” said Yang Shuying, 49, who has been raising cattle since 2004. According to her, a cow could sell for more than 20,000 yuan in 2004 – more than twice the current market price – but the dairy farmer wannabes would still rush to buy.

This generous level of input was driven by the promising output.

Around 7 or 8 years ago, the price of milk was pushed up by competition among several dairy companies, including Sanlu Group, a State-owned company based in Hebei, that later collapsed after it was implicated in the melamine scandal.

“The milk collectors were queuing to buy our produce,” Yang said. “The quality standards were not very strict either, thus all the milk could sell very quickly.”

But the good times did not last long.

In the wake of the melamine scandal, all the previously independent dairy farmers in Qingbao village were ordered to gather their cattle into one of the centralized farms to prevent any possible contamination of the milk.

Wangshengtan farm is one of many such “dairy communities” designed to help implement safety standards and for the convenience of milk collection. There are 1,500 communities of this kind in the province, raising 1.1 million cows across Hebei by the end of 2010, most of which are contracted to Yili or China Mengniu Dairy Co Ltd, another industry leader.

Zhang Haikuan, a regional manager with Yili, is in charge of sourcing and quality supervision of the milk from some of the more than 6,000 cows in the cities of Baoding and Shijiazhuang. He deals with some 120,000 liters every day.

According to Zhang, the entire milking process is inspected through CCTV installed in the milking parlor, where the collection is carried out mechanically and with no direct human contact with the milk.

The milk is then transported to the nearby processing center in refrigerated vans, which have GPS systems installed to track the route.

“I can guarantee you that the dairy products are the safest you can find among all foods in China today,” Zhang said.

But the higher quality has not brought better prospects for the industry.

At Yang and Qiao’s farm, which is contracted to Yili, the company now pays different prices for milk of varying degrees of quality. The price ranges between 3.2 yuan a liter for low quality milk – that with the lowest protein level and the highest level of bacteria – and 3.6 yuan for the highest quality.

The average price paid to Wang Shengtan, the owner of Wangshengtan farm, which is named after him, is 3.4 yuan.

He keeps between 10 and 20 percent of the money as an administration fee, and the farmers eventually receive about 2.8 yuan for each liter of milk sold. That’s compared with the 2007 high of 3.6 yuan a liter.

“Yili sets the price and the farm owner gets the administration fee; they make money anyway. But we dairy farmers have to take all the risks,” Yang said.

Wangshengtan’s farmers once tried to appeal to the local government about the unreasonable purchasing-price mechanism, but say they never received a satisfactory response.

While the purchasing price is at a low ebb, rising costs are squeezing the profits of dairy farmers.

“The price of feed has doubled from 1,500 yuan a ton in 2007 to 3,000 a ton now, and our supplier has told us that it will rise again next month,” Yang said.

Reshuffling to come

In response to the criticism regarding low protein levels, Yang said the problem could easily be rectified by providing high protein feed for the cows. However, with the current surge in feed prices, this doesn’t appear to be an economically viable choice.

In Qingbao village, at least 20 percent of farmers have now sold their cows and taken other jobs, Yang said.

The reason for the confusion in the Chinese dairy industry was once summarized as “the extensive culture model”, meaning that the wide geographical spread of the farms and the practice of individual farming prevented effective monitoring. However, the problems remained, even after all dairy farmers were drafted into collective farms.

According to Yuan Yunsheng, secretary-general of the Dairy Association of Hebei province, the real problem is a conflict of interests in the industry.

“The dairy companies and the farmers are always on opposite sides of the table,” Yuan said. “When the market is thriving, dairy farmers will do everything they can to maximize their yields, but when business fluctuates, the dairy firms suspend collection.”

This problem is common among all primary-products industries, Yuan said. He added that farmers are at the bottom of the food chain, and are therefore the most vulnerable. Thus, if there is a disturbance, the very foundations of the industry can be harmed.

The result will ultimately be a lose-lose situation, Yuan said.

However, the dairy companies will never extend to upstream industry processes, because the breeding business is too risky and unprofitable.

Dairy firms much prefer to build processing factories, but very seldom build their own farms, an analyst said.

“Those charming pastures in the commercials are just for promoting the brand image, but the majority of the milk still comes through purchases from dairy farmers,” said the analyst, who declined to be named.

Yuan is confident that the model will soon be changed; the nation’s Consolidation and Development Plan for Dairy Industry, published in 2008, stipulates that dairy companies must increase the proportion of fresh milk they produce to 70 percent of the industry’s total output by October.

But for the dairy farmers at Wangshengtan farm, it means they will again face a major transformation of their industry.

“Sometimes we just have to get used to these disturbances; although the industry is undergoing tough times, it is evolving,” Yang said. “Those who survive will have the last laugh.”

Source: China Daily

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