The melamine-tainted milk scam claimed the lives of six infants and hospitalized nearly 300,000 others in 2008. The incident forced dairy firms to take their products off the shelves and go into damage control mode, chiefly by way of crisis marketing and quality control.
The industry, which had witnessed a 20 percent growth rate over the past decade, also reported deep losses.
Industry leader Mengniu, for the first time in several years, posted a loss of 948.6 million yuan in 2008, despite strong sales during the first three quarters of the year.
Yili incurred losses of 1.69 billion yuan; Bright Dairy lost 286 million yuan.
Only Sanyuan Food, one of the few producers to escape the crisis, made a profit of 40.76 million yuan in 2008.
Investors too shunned the industry. Yili and Mengniu shares nose-dived. Yili dropped to 6 yuan from 17 yuan, while Mengniu fell to HK$6.4 from HK$24 last August. Bright Dairy shares went down to 3.2 yuan last December from 7.6 yuan in September 2008.
And, in February this year, Sanlu, which was at the heart of the scandal, declared bankruptcy, leaving a dairy market worth 10 billion yuan for other players to grab.
Shaking up
Now, the industry is going through a shake-up of sorts.
Sanyuan Food, a regional brand name in Beijing and Hebei, is gearing up to be a national player after it purchased Sanlu's key assets. Many other regional players are also looking at expansion, although analysts contend that the top two producers, Mengniu and Yili, cannot be replaced that easily.
The industry is also focusing on bettering the source quality of dairy products.
Yili is developing a new cow community model, and plans to organize 20 such communities by the end of 2009. Each community houses 1,000 cows collected from local farmers. Yili is entrusting a professional company with the task of raising the cows to make sure the milk is safe.
"2009 will be the year of quality. Quality means life," Zhang Jianqiu, Executive President, Yili told China Business Weekly.
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