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An opportunity in China’s dairy industry

Scott Tong Feb 27, 2009

An opportunity in China’s dairy industry

Scott Tong Feb 27, 2009


Kai Ryssdal: Chinese regulators have been giving a plant owned by New Jersey-based Wyeth Pharmaceuticals a close going-over, and just yesterday, a clean bill of health. The company is the latest to be wrapped up in the scandal over industrial chemicals turning up in Chinese-made milk powder. Despite the fears over China’s spotty product safety record, international investment does keep flowing in. The Chinese economy is still growing. And American entrepreneurs are still there chasing opportunities — even in the dairy business as Marketplace’s Scott Tong has more.

Scott Tong: Imagine this: You’re shopping in the milk section of the grocery store, and you don’t trust that any brand is safe. That’s the state of China’s dairy industry. Tainted infant formula has killed six babies; and the chemical melamine has been found in every Chinese brand of milk. So consumers are scrambling for something safe.

Lloyd Ward: I think this is a tremendous opportunity. I think it’s the right time.

Enter Lloyd Ward, an entrepreneur with a Fortune 500 pedigree. He once ran Maytag, as well as the U.S. Olympic Committee. But today, Ward is co-founder of a milk industry startup in middle-of-nowhere China. Why?

Ward: There is a compelling need. Chinese consumers, they understand product quality, and you may have to pay more to get products that truly are safe.

Ward is selling high-end organic milk at a high-end price of $4 a quart. And he promises quality, in the form of a secure supply chain. In most of China, that doesn’t exist. There are lots of middlemen, and tens of thousands of family farmers who feed their cows who knows what.

Ward: When you have a supply chain that is as segmented as much this supply was segmented, there were just too many opportunities for things to go wrong.

Ward’s outfit controls every link in the chain, at its pasture in Inner Mongolia. It owns every one of the 2000 cows, everything they’re fed. No pesticides, no fertilizers, no antibiotics.

Dong Run Li manages this pasture. And to him it’s not so much pasture as cow spa.

Dong Run Li: Our cows’ activities are unrestricted, they’re totally free. Those cows there are sunbathing. Over here, they’re eating, and sleeping in their own space. Cows have feelings, like people. If they’re happy, they produce good milk.

The cows-are-people-too approach produces premium content at the milking station: top levels of protein and fat. And Lloyd Ward is banking on middle class parents in China willing to pay top dollar for it.

Ward: Parents will buy for themselves the low end product. And they buy for their kids the expensive product. It’s kind of like the U.S. back in the ’40s, where we knew we wanted our kids to have a better life.

So as China gets rich, its food sector oozes with opportunity. Just beware the risks. Bruce McLaughlin of Sinogie Consultants says too many foreign investors rush in like lemmings, pick a local partner they don’t know well, and disaster strikes. That just happened to a New Zealand milk company that got burned by the melamine scandal.

Bruce McLaughlin: China’s not a magic money-making machine. There’s great opportunities there, but you have to do things right. And people go in and do unbelievably stupid things they’d never do if they were investing in Europe or investing in America.

Entrepreneur Lloyd Ward is willing to take on the risks in China. And the frustrations. Virtually every American manager here will vent about cultural differences, how they make for staff inefficiencies, and meetings that go nowhere.

Ward: In Maytag when you came in you had an agenda, you had a half hour. And we would work through all the critical issues. What are your options? And what do you recommend? I never get that in a Chinese meeting. Never. Never.

Still, Lloyd Ward says it’s all worth it if he can give a little back. And share some corporate America expertise in a developing country. The challenge, though, is to sell his product in a nervous dairy market. Ward is hoping it’ll calm down this spring or summer; that’s when he plans to roll out some new milk products — organic milk for Chinese babies and pregnant women.

In Inner Mongolia, China, I’m Scott Tong for Marketplace.

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