Chinese dairies seek French tie-ups to shore up image

PARIS (AFP) - Companies in China, whose tainted milk powder scandal in 2008 left six dead and more than 300,000 sick, are vaunting tie-ups with French dairies to shore up their image but some fear this could backfire for Paris.

Chinese firm Biostime flaunts its tie-ups with two companies in France, Europe's second largest milk producer after Germany, and one in Denmark as proof that its products are safe.

But experts say the French reputation for quality in food could be at stake if the goods were tampered with once in China, and warn that French dairy farmers could end up financially squeezed by the new investors.

Biostime, based in Guangzhou and listed on the Hong Kong stock exchange, has joint ventures with France's Laiterie de Montaigu and the Isigny Saint-Mere cooperative as well as Danish group Arla.

The agreement with Isigny is the most ambitious, with Biostime investing 20 million euros to set up a new production unit in Normandy that will more than double baby milk production there.

The project will cost 50 million euros (S$84 million) in total and in return, Isigny will reserve two-thirds of its production for China and offer one place for Biostime on its 15-member board.

Ms Valerie Mariaud, Isigny's marketing head for baby milk, said the cooperative was pleased, adding: "In choosing Biostime, which stresses on the origin of its milk, we are not afraid that it will develop the product in China."

A Western diplomatic source in Beijing said the moves for tie-ups with foreign firms in New Zealand and Europe were prompted by fears of a baby milk shortage locally.

Chinese companies, the source said, were trying to "overcome their notoriety internationally" by acquiring brands and technology not only in milk products but also in pork items and soya beans.

The quest for baby milk is urgent for the Chinese.

UN child agency UNICEF says only 28 percent of Chinese mothers breastfeed for the first six months - a figure which drops to 16 percent in urban areas.

The global average is about 40 percent.

Many other French firms have been approached by Chinese companies. But France's Lactalis, the world's top dairy firm behind the Lactel milk and President cheese, said it was not interested.

"We basically want to sell under our own brand names (in China)," group spokesman Michel Nalet told AFP.

French firm Sodiaal, which owns the well-known Yoplait and Entremont brands, has meanwhile adopted a double strategy by launching its Candia products in China and tying up in France with Synutra, China's fourth largest maker of baby milk.

This venture centres around a new facility to produce baby milk in the north-western town of Carhaix. Synutra holds a 90 percent stake and the entire production - 280 million litres of milk and 30,000 tonnes of whey or milk serum - will be destined for China.

But some voice fears that the Chinese firms could abandon France if they found cheaper options.

"I really don't see the Chinese buying milk powder at 320 euros per tonne if the price in the world markets is lower," said Eric Duverger, a dairy farmer who supplies to Sodiaal.

Mr Duverger also said a 10-year partnership between the firms could also lead dairy farmers "to increase production to supply the Chinese but if they "leave at the end of 10 years, what will happen?" Francois Souty, a university professor and an expert on competition laws, warned that such ventures could carry a huge risk.

"If we sell French milk under a Chinese brand what could hang over us is a sanitary problem with all the repercussions it could have in terms of image," he said.

"Who will control the process once the milk powder is in China?" he said.

In August, China fined six manufacturers of baby formula more than US$100 million (S$127 million) for price-fixing, among them New Zealand's Fonterra - the world's biggest dairy company and the subject of a recent botulism health scare.

But French junior minister for the food industry Guillaume Garot dismissed suggestions that France risked much by accepting Chinese investment.

"On what grounds should we turn down investments which enhance the French reputation for quality and creates jobs," Mr Garot told AFP.

"We have to beef up our commercial efforts and reinforce industrial partnerships," he said.