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
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,
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
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
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.
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
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
The results were reviewed
and approved with flying colors by a PNDC-sponsored panel of specialists in
PNDC Director Yu Xiaodong
said authorities saw technological progress as beneficial for the entire
“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
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
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
Researchers concluded that more milk containing OMP is not necessarily better, and that the ingredient may be ineffective for post-menopausal 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.
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
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
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.
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