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Swiss food giant Nestlé, which has been busy with mergers and acquisitions in China, was suddenly reported to have united with the local government to monopolize the milk source and lower the price of crude milk in Shuangcheng, Heilongjiang.
On October 25, local people who are familiar with Nestlé said that “it is no longer a secret that Nestlé reduces milk farmers’ payment that they deserve. The company only pays local milk farmers for 80% to 90% of the crude milk they sell to the milk collection stations in Shuangcheng”. These milk collection stations are run by workers of Nestlé or temporary employees recruited by this Swiss company. That means the milk farmers’ pay was actually skimped by Nestlé.
Apart from that, the price at which Nestlé acquires crude milk in Shuangcheng is lower than the price of other milk processing companies. The present price Nestlé offers is about 2.8 yuan per kilogram while the other companies’ prices reach 3 yuan or even 3.6 yuan per kilogram.
This made Nestlé’s milk powder section meet an unprecedented crisis in China. The problems, such as monopolizing the milk source, skimping milk farmers’ pay
and buying crude milk at a low price, all placed Nestlé’s milk collection pattern of “company + milk farmers”, which Nestlé used to be proud of, under close scrutiny and heavy criticism by the public.
Low Price for Long
“Nestlé lowers the price of crude milk very much, forcing local milk farmers to sell their milk to the private milk collection stations in the surrounding areas of Harbin,” said a person who runs a milk collection station of Nestlé in Harbin, Heilongjiang.
According to him, the price Nestlé offers to local milk farmers is 3.1 yuan per kilogram of crude milk, lower than the price offered by other milk processing companies.
A director of a local milk processing company said: “The price Nestlé offers to local farmers is 3.1 yuan per kilogram, but this company always pays for only 80%-90% of the crude milk local farmers sell. That means Nestlé only pays for 8 or 9 kilograms of crude milk if a local farmer sells 10 kilograms of crude milk to the company. Therefore, the actual price that Nestlé buys crude milk there is 2.8 yuan per kilogram. In comparison, the price we offer is higher than 3 yuan per kilogram.”
A well established local dairy company in Heilongjiang lists its prices of crude milk as follows: 3.4 yuan per kilogram for farmers whose farms are close to the milk collection stations and 3.6-3.7 yuan per kilogram for those whose farms are far from the milk collection stations, 20% higher than the price offered by Nestlé. Actually this is not the first time that Nestlé forced down the price of crude milk in China.
In 2009, Nestlé lowered the price of crude milk to 1.95 yuan per kilogram in Heilongjiang. In the same year, Chinese local dairy company Mengniu bought crude milk at 2.8 yuan per kilogram in Heilongjiang, 2.55 yuan per kilogram in Inner Mongolia and 2.75 yuan per kilogram in Hebei.
It is known that local government departments in Shuangcheng and Heilongjiang held several negotiations with Nestlé to increase the price at which it acquires crude milk. The Heilongjiang Provincial Department of Farming issued standards as the reference for price of crude milk, but Nestlé refuses to follow these standards because it thinks that they have no legal binding force.
In April 2010, the milk farmers in Shuangcheng collectively suffered a great loss. Thus this city was chosen as a place where the government-fixed price of purchasing crude milk was to be carried out. The Heilongjiang provincial government stipulated that any company should not purchase crude milk with the price lower than 2.8 yuan per kilogram in Shuangcheng. Due to the stipulation, Nestléreluctantly increased its price of purchasing crude milk to 2.8 yuan per kilogram.
As for who caused the short payment, an expert said: “The executives at Nestlé may have no plan or intention for this. However, the workers in its milk collection stations and the agencies that connect milk farmers and these milk collection stations should be blamed for the short payment.”
The biggest difference between Nestlé and domestic dairy companies is that Nestlé’s milk collection stations are run by Nestlé and managed by its employees. In comparison, Chinese domestic companies usually recruit private milk collection stations as the agencies for their milk source.
Nestlé contributes money to building its self-owned milk collection stations in China. The workers in these milk collection stations are considered employees of Nestlé and are paid based on the
size of the milk collection stations they work for (the monthly salary for each employee is 3000-5000 yuan in the milk collection stations which can purchase below 18 tons of crude milk every day and 6000-7000 yuan in the milk collection stations which can purchase over 18 tons of crude milk every day).
Such a pattern released Nestlé from the concerns of managing and supervising the quality of the milk they gain from milk collection stations (Nestlé’s workers in these milk collection stations have the responsibility and sense to check the milk quality). Thus the company can concentrate itself on processing plants. That’s why Nestlé’s milk powder section could experience fast development in China in recent years. However, when Nestléis free from the anxiety of milk quality, another problem, which Nestlé might never have expected before, arose. Some milk collection stations work with local government departments to lower the price of crude milk and reduce the payment that milk farmers deserve in order to get more milk with lower cost. However, this greatly damaged Nestlé’s name in China. When the case was reported in October, He Tong, PR manager of NestléChina, said that “Nestlé never cheated farmers and could not tolerate this activity either”.
Denounced“Nestlé’s Pattern”
The fast development of Nestlé’s milk powder section in China is based on the sacrifice of milk farmers’ interests.
In addition to that,
Nestlé’s pattern in the milk powder
section is severely blamed for its cooperation with local governments in monopolizing the milk source. Apart from the company and milk farmers, the local governments are important participants in Nestlé’s milk powder industrial chain in China. In Shuangcheng, the local government has a 2.99% stake of Nestlé’s branch in this city. With the administrative orders, Nestlé was able to have stable crude milk supply.
Driven by Nestlé, the number of milk cows fed in Shuangcheng increased from fewer than 20 thousand ten years ago to 284.8 thousand in 2008. There were maximally 35 thousand users in this city and many people became wealthy by feeding milk cows. People in Shuangcheng were fascinated by feeding milk cows and this situation lasted till 2008.
The “melamine event” in 2008 became a turning point. From the second half of 2008, Nestlé’s branch in Shuangcheng began to lower the price of purchasing crude milk. This situation lasted till April 2010, before which, the price of crude milk had been lower than 1.95 yuan per kilogram for more than one year. The low price of crude milk caused the bankruptcy of many milk farmers, many of whom had to sell or kill their cows to reduce their loss. By June 2010, the number of milk cows in Shuangcheng had dropped to 212 thousand.
Nestlé puts strict requirements over the milk farmers. Any milk farmer will be warned if the milk he/she sells has a quality problem for the first time. If the milk is engaged in quality issues for a second time, Nestlé will withhold 5% of the money for the milk that the farmer sells. Then, the farmer will be deprived of the qualification as a milk supplier for Nestlé’s milk collection stations.
However, Nestlé gives the task of mechanization in feeding and milking, which should be done by the enterprises, to the farmers. This is quite strange for some enterprises. Presently, the Chinese government is spreading the mechanized milking technology, while milk farmers in Nestléstill milk their cows manually. The milk stored in milk collection stations is exposed to the air and the quality cannot be guaranteed.
“The government requires big enterprises to build modernized milk meadows and milk collection stations. Nestlé, as the biggest food company in the world, should follow this requirement.”
Apart from the behindhand devices, Nestlé still sticks to the scattered breeding of milk cows. While the wellestablished domestic dairy companies have already built self-owned modernized meadows, Nestlé still walks on the path far away from modernization.
During the process of milk collection, Nestlé even punished the farmers“related” to the milk having quality problem – Nestlé usually mixes the milk of several farmers into one vehicle before it is sent to the factory for the quality examination. If one vehicle of milk has a quality problem, all the milk farmers, whose milk is stored in that vehicle, are punished, even though only one of them should be really responsible for the bad milk.
Nestlé explains that this method is meant to“make farmers supervise each other”. Mu Li, former president of Nestlé Greater China, said: “There are two misunderstandings in China’s dairy industry that should be clarified. One, the highquality milk comes from good feeding instead of careful examination. Two, milking cows manually is as hygienic as milking by machines.”
Chen Yu, director of the China Association of Dairy Industry said that Nestlé’s pattern was quite efficient– “Nestlé could keep the quality of milk even though they milked cows manually” –though the efficiency comes at the cost of sacrificing milk farmers’ interests.
On October 25, local people who are familiar with Nestlé said that “it is no longer a secret that Nestlé reduces milk farmers’ payment that they deserve. The company only pays local milk farmers for 80% to 90% of the crude milk they sell to the milk collection stations in Shuangcheng”. These milk collection stations are run by workers of Nestlé or temporary employees recruited by this Swiss company. That means the milk farmers’ pay was actually skimped by Nestlé.
Apart from that, the price at which Nestlé acquires crude milk in Shuangcheng is lower than the price of other milk processing companies. The present price Nestlé offers is about 2.8 yuan per kilogram while the other companies’ prices reach 3 yuan or even 3.6 yuan per kilogram.
This made Nestlé’s milk powder section meet an unprecedented crisis in China. The problems, such as monopolizing the milk source, skimping milk farmers’ pay
and buying crude milk at a low price, all placed Nestlé’s milk collection pattern of “company + milk farmers”, which Nestlé used to be proud of, under close scrutiny and heavy criticism by the public.
Low Price for Long
“Nestlé lowers the price of crude milk very much, forcing local milk farmers to sell their milk to the private milk collection stations in the surrounding areas of Harbin,” said a person who runs a milk collection station of Nestlé in Harbin, Heilongjiang.
According to him, the price Nestlé offers to local milk farmers is 3.1 yuan per kilogram of crude milk, lower than the price offered by other milk processing companies.
A director of a local milk processing company said: “The price Nestlé offers to local farmers is 3.1 yuan per kilogram, but this company always pays for only 80%-90% of the crude milk local farmers sell. That means Nestlé only pays for 8 or 9 kilograms of crude milk if a local farmer sells 10 kilograms of crude milk to the company. Therefore, the actual price that Nestlé buys crude milk there is 2.8 yuan per kilogram. In comparison, the price we offer is higher than 3 yuan per kilogram.”
A well established local dairy company in Heilongjiang lists its prices of crude milk as follows: 3.4 yuan per kilogram for farmers whose farms are close to the milk collection stations and 3.6-3.7 yuan per kilogram for those whose farms are far from the milk collection stations, 20% higher than the price offered by Nestlé. Actually this is not the first time that Nestlé forced down the price of crude milk in China.
In 2009, Nestlé lowered the price of crude milk to 1.95 yuan per kilogram in Heilongjiang. In the same year, Chinese local dairy company Mengniu bought crude milk at 2.8 yuan per kilogram in Heilongjiang, 2.55 yuan per kilogram in Inner Mongolia and 2.75 yuan per kilogram in Hebei.
It is known that local government departments in Shuangcheng and Heilongjiang held several negotiations with Nestlé to increase the price at which it acquires crude milk. The Heilongjiang Provincial Department of Farming issued standards as the reference for price of crude milk, but Nestlé refuses to follow these standards because it thinks that they have no legal binding force.
In April 2010, the milk farmers in Shuangcheng collectively suffered a great loss. Thus this city was chosen as a place where the government-fixed price of purchasing crude milk was to be carried out. The Heilongjiang provincial government stipulated that any company should not purchase crude milk with the price lower than 2.8 yuan per kilogram in Shuangcheng. Due to the stipulation, Nestléreluctantly increased its price of purchasing crude milk to 2.8 yuan per kilogram.
As for who caused the short payment, an expert said: “The executives at Nestlé may have no plan or intention for this. However, the workers in its milk collection stations and the agencies that connect milk farmers and these milk collection stations should be blamed for the short payment.”
The biggest difference between Nestlé and domestic dairy companies is that Nestlé’s milk collection stations are run by Nestlé and managed by its employees. In comparison, Chinese domestic companies usually recruit private milk collection stations as the agencies for their milk source.
Nestlé contributes money to building its self-owned milk collection stations in China. The workers in these milk collection stations are considered employees of Nestlé and are paid based on the
size of the milk collection stations they work for (the monthly salary for each employee is 3000-5000 yuan in the milk collection stations which can purchase below 18 tons of crude milk every day and 6000-7000 yuan in the milk collection stations which can purchase over 18 tons of crude milk every day).
Such a pattern released Nestlé from the concerns of managing and supervising the quality of the milk they gain from milk collection stations (Nestlé’s workers in these milk collection stations have the responsibility and sense to check the milk quality). Thus the company can concentrate itself on processing plants. That’s why Nestlé’s milk powder section could experience fast development in China in recent years. However, when Nestléis free from the anxiety of milk quality, another problem, which Nestlé might never have expected before, arose. Some milk collection stations work with local government departments to lower the price of crude milk and reduce the payment that milk farmers deserve in order to get more milk with lower cost. However, this greatly damaged Nestlé’s name in China. When the case was reported in October, He Tong, PR manager of NestléChina, said that “Nestlé never cheated farmers and could not tolerate this activity either”.
Denounced“Nestlé’s Pattern”
The fast development of Nestlé’s milk powder section in China is based on the sacrifice of milk farmers’ interests.
In addition to that,
Nestlé’s pattern in the milk powder
section is severely blamed for its cooperation with local governments in monopolizing the milk source. Apart from the company and milk farmers, the local governments are important participants in Nestlé’s milk powder industrial chain in China. In Shuangcheng, the local government has a 2.99% stake of Nestlé’s branch in this city. With the administrative orders, Nestlé was able to have stable crude milk supply.
Driven by Nestlé, the number of milk cows fed in Shuangcheng increased from fewer than 20 thousand ten years ago to 284.8 thousand in 2008. There were maximally 35 thousand users in this city and many people became wealthy by feeding milk cows. People in Shuangcheng were fascinated by feeding milk cows and this situation lasted till 2008.
The “melamine event” in 2008 became a turning point. From the second half of 2008, Nestlé’s branch in Shuangcheng began to lower the price of purchasing crude milk. This situation lasted till April 2010, before which, the price of crude milk had been lower than 1.95 yuan per kilogram for more than one year. The low price of crude milk caused the bankruptcy of many milk farmers, many of whom had to sell or kill their cows to reduce their loss. By June 2010, the number of milk cows in Shuangcheng had dropped to 212 thousand.
Nestlé puts strict requirements over the milk farmers. Any milk farmer will be warned if the milk he/she sells has a quality problem for the first time. If the milk is engaged in quality issues for a second time, Nestlé will withhold 5% of the money for the milk that the farmer sells. Then, the farmer will be deprived of the qualification as a milk supplier for Nestlé’s milk collection stations.
However, Nestlé gives the task of mechanization in feeding and milking, which should be done by the enterprises, to the farmers. This is quite strange for some enterprises. Presently, the Chinese government is spreading the mechanized milking technology, while milk farmers in Nestléstill milk their cows manually. The milk stored in milk collection stations is exposed to the air and the quality cannot be guaranteed.
“The government requires big enterprises to build modernized milk meadows and milk collection stations. Nestlé, as the biggest food company in the world, should follow this requirement.”
Apart from the behindhand devices, Nestlé still sticks to the scattered breeding of milk cows. While the wellestablished domestic dairy companies have already built self-owned modernized meadows, Nestlé still walks on the path far away from modernization.
During the process of milk collection, Nestlé even punished the farmers“related” to the milk having quality problem – Nestlé usually mixes the milk of several farmers into one vehicle before it is sent to the factory for the quality examination. If one vehicle of milk has a quality problem, all the milk farmers, whose milk is stored in that vehicle, are punished, even though only one of them should be really responsible for the bad milk.
Nestlé explains that this method is meant to“make farmers supervise each other”. Mu Li, former president of Nestlé Greater China, said: “There are two misunderstandings in China’s dairy industry that should be clarified. One, the highquality milk comes from good feeding instead of careful examination. Two, milking cows manually is as hygienic as milking by machines.”
Chen Yu, director of the China Association of Dairy Industry said that Nestlé’s pattern was quite efficient– “Nestlé could keep the quality of milk even though they milked cows manually” –though the efficiency comes at the cost of sacrificing milk farmers’ interests.