English > Industry&Companies > Industry-Feature Story>Dairy's Pride Sours in Additive Controversy

Dairy's Pride Sours in Additive Controversy

03-04 08:50 Caijing

Once touted as a health boost, a milk additive called OMP is now the focus of debates over food safety and China's largest dairy.

By staff reporters Li Hujun, Wang Shanshan, Liu Jingjing and Zhao Hejuan

From Caijing Magazine


An upscale health product called Milk Delux was expected to be a perfect market recovery springboard for China’s largest dairy, Mengniu, in the wake of a tainted baby formula scare that rocked the nation last year.


But a February 2 letter and follow-up orders from consumer protection regulators bounced Mengniu backward, right into the eye of another food safety storm.


In the letter, Inner Mongolia’s branch of the State Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) received an order from AQSIQ headquarters to stop the company from adding the ingredients osteoblast milk protein(OMP) and insulin growth factor (IGF-1) to Milk Delux on grounds that neither ingredient had been officially approved for human consumption.


The agency also ordered Mengniu to obey the law and apply to the Ministry of Health for permission to use the additives in its milk.


At first, the government clampdown remained confidential. But an anonymous email about the order leaked to the news media February 11, sending investors running for cover. Mengniu’s stock price on the Hong Kong market fell more than 22 percent that day.


Mengniu’s Defense


The timing could not have been worse for Mengniu. Like most of its competitors, the dairy has been struggling for months ever since officials last year discovered that milk sold across China contained a toxic additive called melamine that sickened hundreds of thousands of children. So far one dairy has collapsed, and other dairy brands have been black-listed by consumers.


After the latest storm hit, Mengniu took a defensive posture, explaining that OMP is safe and is commonly added to food in many countries where it’s also called Milk Basic Protein (MBP). At the same time, Mengniu denied adding IGF-1 to Milk Delux.


The dairy found solace after the Ministry of Health posted a report on its Web site in mid-February about tests conducted with AQSIQ. The tests confirmed that milk containing OMP is safe to drink.


Nevertheless, the company’s explanation and the health ministry report failed to settle other questions about OMP, Mengniu and the food safety monitoring system.


Delux ‘Miracle’


The abbreviated English word “delux” that Mengniu chose for this so-called health product can be translated into Mongolian as “gold medal.” It first appeared on the market in late 2005 as a top-of-the-line product.


Early advertisements attached the milk’s high quality to the fact that it came from cows raised on premium farms along the 40th parallel. Mengniu also said OMP can “significantly improve bone regeneration and increase bone density.”


The campaign apparently worked; business soared and Mengniu raised prices of Milk Delux brands – including low-fat, OMP and organic milk -- by 40 percent. Today, a 250 gram packet of OMP milk sells for 5.1 yuan, more than twice the 2.4 yuan price for standard milk. The Delux series accounted for 7 percent of Mengniu’s revenues and 20 percent of its profits in 2007.


A year before the release of Delux, the milk industry was in the doldrums. The market for low- and medium-end products was saturated, and fierce competition pushed down prices. Faced with rising energy, feed and transportation costs, only 30 percent of the country’s dairy producers were making money, said Liu Chengguo, secretary of the China Dairy Association (CDA). Moreover, per capita spending on milk had increased a relatively modest 6.1 percent in 2004, compared to growth rates of 30 percent and 19 percent in the previous two years.


Mengniu was slumping as well after enjoying seven years of rapid expansion, during which its assets increased to 6 billion yuan in 2005 from 10 million yuan in 1999. Revenues grew to more than 10 billion yuan from 37 million yuan in the same period.


The company needed a shot in the arm, and Milk Delux fit the bill. Within months of its introduction, Mengniu was no longer dependent on low-end milk. And by the first half of 2006, milk revenues had climbed 60 percent year-on-year – a change the company attributed to “high value-added products and product differentiation strategies.”


Mengniu’s 2007 annual report said China’s dairy product structure was undergoing major changes. High-tech and products with special nutrition functions were market magnets.


Government Backing


Mengniu’s high-tech strategy was supported by the Public Nutrition and Development Center (PNDC), which is tied to the Macroeconomic Institute of the National Development and Reform Commission (NDRC). PNDC commissioned Mengniu in 2005 to develop technology for milk-related products that could promote healthy bones. It was a government-business cooperative effort.


The agency also commissioned the Health Science Center at Peking University to research the effectiveness of OMP in improving bone regeneration and density. The OMP used in the tests was called MBP and came from Mengniu, although researchers at that time were not told its source.


The results were reviewed and approved with flying colors by a PNDC-sponsored panel of specialists in Beijing in March 2006, according to PNDC’s Web site.


PNDC Director Yu Xiaodong said authorities saw technological progress as beneficial for the entire industry. China’s dairy companies had long ago defeated foreign competitors by cutting prices, he said, but had compromised on safety and nutrition.


“So when Mengniu brought in high-tech ingredients such as OMP, I thought it should be encouraged,” Yu told Caijing.


Nevertheless, the exact origin of OMP was shrouded in mystery. “At that time,” Yu said, “we were not even sure whether OMP was developed by Mengniu or imported from outside the country.”


Yu, in an interview with the news portal Sina.com in April 2006, said OMP tests on animals and humans had proven the ingredient to be effective in improving calcium absorption and storage, while increasing bone density as well.  


Two months later, Mengniu President Yang Wenjun hailed OMP Milk Delux as a unique innovation developed by Chinese scientists and his company over a span of 18 months. In an article published in the Hohhot Economic Journal, he called it the world’s first OMP product that “absorbs and holds calcium.”


“The Chinese milk industry has made the leap from ‘Made in China’ to ‘Created in China,’” Yang wrote.


But the latest controversy over OMP threw a wet rag on Yang’s boast. In the course of explaining its use of the additive, Mengniu admitted that it imported the ingredient from New Zealand.


Testing Mystery


Professor Nan Qingxian of the Agricultural University of China was a specialist on the panel that conducted the review. He told Caijing the 90-day OMP tests were conducted on large mice, not humans.


Leading the research was Professor Lin Xiaoming of the Health Science Center at Peking University, who published the results in the January 2007 edition of  a medical journal called Health Study. The article said small doses of MBP had significantly increased the density of bones in mice, but that higher doses did not enhance the effect. Meanwhile, the study found that no amount of MBP affected mice whose ovaries had been removed.


Researchers concluded that more milk containing OMP is not necessarily better, and that the ingredient may be ineffective for post-menopausal women.


Separately, Peking University’s Health Science Center last August concluded human research on the benefits of milk with OMP. It focused on the additive’s effect on bone density and regeneration among young women.


In the test, 84 female medical students ages 18 to 20 were observed for eight months in three, separate reference groups. One group of women drank OMP-spiked milk, members of a second group drank standard milk, and those in a third group drank no milk.


The researchers found less bone density among young women who drank OMP milk than those who drank normal milk. The report noted, however, that the difference was not significant due to different physical characteristics and other factors.


Although the human OMP test was extended to eight months from its originally planned six months, no changes in bone density were observed. “A longer test period is needed to prove its convincing effect on human bone density,” the report concluded.


“Scientific results do not always tell the truth,” added Lin.


Sourcing Issues


In the early marketing campaign for OMP Milk Delux, Mengniu described OMP as “a bone-building cow milk protein,” and said IGF-1 was its main ingredient.


Mu Zhishen, Mengniu’s chief technology supervisor, has co-authored several papers saying IGF-1 is the main ingredient in OMP. He contributed these papers in his capacity as a researcher at the Food Science and Engineering Institute at Inner Mongolia Agricultural University.


Mengniu even applied for a patent for a type of milk laced with IGF-1. In the application filed in February 2006 with the State Intellectual Property Office, IGF-1’s source was said to be the Shanghai Tongyuan Co. The patent application number was 200610003551.9 -- same as the number for OMP Milk Delux posted by the official Web site of the Inner Mongolian Industrialization Office in November 2007.


But late last year, Mengniu changed its story, denying on several occasions that Milk Delux contained IGF-1. It also stressed that OMP is actually MBP imported from the Tatua Co-operative Dairy Co. in New Zealand via Shanghai Tongyuan. Its claim was backed by an investigation by Inner Mongolian AQSIQ in early February, which said in a report that IGF-1 was not mixed into Mengniu’s OMP milk. 


At a press conference February 14, Mengniu’s Yang explained that OMP milk is “a totally different concept” from milk laced with IGF-1. He added that many of Mengniu’s intellectual property patents were obtained for future use.


The dairy’s denials came amid widespread speculation that OMP Milk Delux is laced with IGF-1, an ingredient that some media sources and dairy associations have said may cause cancer in extreme doses.


However, some say it is more likely Mengniu did not add IGF-1 into its OMP Milk Delux. “IGF-1 is simply too expensive,” said Fang Zhouzi, who operates a scientific fraud watch Web site called New Threads.


Meanwhile, public attention has focused on the safety of OMP and MBP.


A special panel organized by the Ministry of Health and AQSIQ said in a statement February 13 that OMP is a safe-to-consume cow milk protein obtained by skimming and filtering milk and its major components include lactoferrin and lactoperoxidase. 


But specialists on the panel said they only reviewed the ingredient Mengniu claimed to have added, and that it will be up to law enforcement authorities to determine exactly what was mixed into Milk Delux.


Investigation Continues


In the weeks since AQSIQ ordered Mengniu to stopping adding OMP to Milk Delux, the Ministry of Health has faulted Mengniu for failing to obtain permission before importing OMP from New Zealand and blending it in milk. The ministry also criticized Mengniu for exaggerating the health benefits of its milk in advertisements.


A Mengniu official told Caijing that OMP products are regarded as normal food materials in the United States and a number of other countries, where their use requires no special permission.


Some industry insiders say vagueness and ambiguity in China’s food regulations and standards contributed to the current headaches for the milk business. And there’s no end in sight. Despite months of questioning and public debate over Mengniu’s Milk Delux, ASQIQ and the Ministry of Health have yet to release the details of their investigation and research.


Full Article in Chinese: http://magazine.caijing.com.cn/templates/inc/chargecontent2.jsp?id=110075606&time=2009-03-02&cl=106

Please contact Caijing Magazine for any inquiries. Reproduction in whole or in part without Caijing's permission is prohibited.
[ICP License: 090027] IDC License:[B2-20040250] Advertising Business License:[京海工商广字第0407号] 京公网安备11010502005607号
Copyright by Caijing. All Rights Reserved