Farmers feel full effect of poisoned milk scandal

Since the crisis began to unravel, hundreds of China dairies have been left with produce they cannot sell and hers of worthless cows.

Despite the Chinese government budgeting substantial sums to help small farmers survive the milk scandal, many are selling up and leaving the industry.

BEIJING // China's dairy farmers, squeezed by rising costs and the recent scare over tainted milk, are choosing to get out of the business, rather than place their trust in a system they consider corrupt and flawed. Farmers such as Mr Peng have been forced to throw out dozens of litres of milk each day since Sept 11, when news that infant formula contained harmful levels of the industrial chemical melamine first started to emerge.

Within a week or so, it was announced four babies had died of kidney failure and that tens of thousands had been hospitalised. Mr Peng, who like many farmers caught up in the scandal was hesitant to reveal too many personal details, considers himself lucky. He has just sold his three cows and has found a job in a local factory. "I am out of trouble," he said. "But this is not the case with many of my friends."

Mr Peng comes from Zhengding county near Shijiazhuang, the capital of Hebei province and where the milk scandal originated. Before Sept 11, Mr Peng was selling all his produce to Sanlu, China's third largest milk producer and once the pride of the province. Since Sanlu was shut down, hundreds of small farmers who supplied the company are left with milk they cannot sell and cows that are now not worth anything. At first, Mr Peng and some of his friends joined forces and advertised their milk on the internet. But the farmers made few sales.

By that time, the scandal had spread further with more dairy products found to be tainted with melamine. With no idea when, or if, Sanlu will be able to reopen (two legal cases are pending against the company), Mr Peng said it was better to sell the cows than remain in limbo. He is not the only one choosing to cash out of the milk market. Although the government has earmarked 300 million yuan (Dh162m) to help small farmers survive and promised new restrictions and tighter controls, many are not willing to take the risk.

Mrs and Mr Niu entered the business 10 years ago when a friend convinced them to buy a few cows. Their business grew on the back of Sanlu's soaring profits as a growing middle-class in China turned to dairy products. The couple now own 10 cows in the small village of Dong Bei Niu, 160km north-east of Shijiazhuang. But for the past several weeks, the cows have been at the couple's property, instead of at the milk collecting station, which would then pass the milk on to Sanlu or other dairy companies.

Although the couple are receiving government subsidies (10 yuan per day per cow, enough for the feed) and are selling a small amount to villagers, it is still not enough. Soon, the couple hope to sell their dairy cows and raise pigs, the price of which has risen more than 60 per cent over the past year, and cattle for beef. "Cows are too tiring and I want more time with my grandchild. The timing is good," Mrs Niu said.

Mr Niu added: "Plus, raising cows for milk is not profitable anymore." This underscores a much larger problem within the industry. The price of feed has doubled over the past year, but milk stations, and the middle men, have refused to pay the farmers higher prices. Mrs Niu said she was selling milk at 1.6 yuan per litre last year. This year it was two yuan per litre, but still not enough to cover the rising costs.

"The agents make money from us. They make money from Sanlu," Mrs Niu said. "They fix the price and we have no say in this." News that Sanlu was selling contaminated milk came as a complete surprise to many small dairy farmers, who said they mostly heard about it through the media. Mr Niu said he received his first warning when Sanlu stopped purchasing milk from one of his friends. The couple are quiet, however, when asked who they think is responsible for topping up the milk with melamine, a chemical that can make watered-down milk look as though it has a high protein content.

The subject is sensitive and all milk producers received notices last week forbidding them to speak to journalists. But most of the anger seems to be directed towards the milk collecting stations and high-level officials, who are alleged to have received kickbacks to turn a blind eye to the chemical additions. It is still unclear who is responsible and at what stage of the process the melamine entered the milk. Though milk producers and the government blame the milk stations, analysts said it is unlikely they could have done so without the tacit approval of the big milk companies. Dozens of arrests have been made, including milk farmers meddling with their milk, milk stations operators, Sanlu officials, people making the melamine and government officials in Hebei province. Arrests are also happening in Inner Mongolia where Yili and Mengnui dairy companies are based.

Sanlu, which produced 6,800 tonnes of milk a day before it was shut down, bought most its raw material from the milk stations, who in turn collected the milk from small farmers who thrived as the government eased credit and supported the industry to keep up with demand. Revenue in China from milk-formula rose to US$3.1 billion in 2007 from $1.4bn in 2003, according to Euromonitor International. Revenue from other dairy products grew to $17.9bn from $8.8bn in the same period, the journal said.

To avoid social unrest and a total collapse of the local industry, the government has been especially keen to reassure farmers, promising subsidies, regulating milk collection stations and imposing restrictions on the amount of melamine allowed in any food products. However, Mrs Niu is more upset than angry. She knows she will get money from selling her cows to Yili or Mengnui China's first two milk producers based in Inner Mongolia.

"People still want our cows. It is not that bad," she said. Cows that were worth 15,000 yuan a few months ago are now selling for 10,000 yuan. Some farmers are more resigned. "The situation is not as desperate as some reports have said," said Mr Pang, a friend of the couple. "At first people panicked but now they realise they have other options like working in a factory or raising other animals mostly chicken or pigs." Mr Pang sold his five cows and now owns a small transport business. He said he will never return to milk farming.

* The National