Dairy producers report huge profits

Chinese major dairy producers have reported large profit increases for 2011, thanks to strengthened regulation last year by authorities, even though a series of food safety scandals marred the reputation of the industry during the year.

China Mengniu Dairy Co, the country's largest dairy producer by market value, yesterday reported a 28.4 percent rise in its net profit for 2011.

Also yesterday, Bright Dairy & Food Co announced that its 2011 profit increased by 22.4 percent to 238 million yuan compared to a year earlier.

Another Chinese dairy giant Inner Mongolia Yili Industrial Group Co said last month that its income topped 1.81 billion yuan in 2011, an increase of 132.8 percent year-on-year.

"Last year the authorities strengthened regulation of the dairy sector, which led to closures of some small dairy companies. That has provided more market space for big companies," Zhou Siran, a food industry analyst with the Shenzhen-based CIC Industry Research Center, told the Global Times yesterday.

The net profit of Mengniu, the Hong Kong-listed company amounted to 1.59 billion yuan ($252 million) last year. Its revenues reached 37.39 billion yuan, up 23.5 percent from a year earlier, mainly thanks to sales in the mainland market, which contributed over 90 percent of the total, according to Mengniu's 2011 financial report released yesterday.

Mengniu's performance belied analyst predictions earlier that the company's sales and market share would drop, after a series of food safety scandals bruised its brand image and battered investors' confidence, dragging its shares down.

"The company still maintains its leadership in the country's dairy industry and the majority of Chinese consumers still recognize Mengniu as their first dairy choice," Chen Lianfang, a dairy industry analyst at Beijing Orient Agribusiness Consultant, told the Global Times yesterday.

In April last year, 251 children at a school in Shaanxi Province fell ill after drinking Mengniu milk. And in December, the General Administration of Quality Supervision, Inspection and Quarantine announced that a batch of milk produced by Mengniu's branch in Sichuan Province contained more than double the permitted level of carcinogenic aflatoxin M1, a cancer-causing substance.

Chen noted that only a few customers, who pay much attention to food safety, have chosen not to buy Mengniu products after the food scandals, and that the company is "too big to be replaced by any other brand."

Shares of Mengniu rebounded earlier this year after dropping by more than 30 percent last year. The stock closed up 5.024 percent to HK$21.95 ($2.83) yesterday, compared with a 1.83 percent gain in the benchmark Hang Seng Index.