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Economy

Nestle's Promised Cash Cow Has Run Dry For Chinese Dairy Farmers

Chinese farmers are tired of selling their milk to Nestle at steeply discounted prices, and want an end to local bans on selling elsewhere. Some have threatened to slaughter their cows instead of letting Nestle and their government-backed local monopoly m

Chinese farmers
Chinese farmers
Hao Daqin

Dairy farmers from Twin City in Heilongjiang province are refusing to provide their milk to Nestle. They have been supplying milk for years but now some farmers would rather slaughter their cows than sell their milk. The aim is to resist the longstanding monopoly Nestle has in northeastern China's largest milk producing city.

Though Nestle has said it will "investigate" the situation, the conflict is the result of what we'd call a perfect case of "make the cake and divide the cake", a common dynamic in Chinese society today.

In 2002, Nestle signed a contract with the municipal authority of Twin City to have a monopoly over purchasing from all dairy farmers. Not only is the city prohibited from dealing with any other dairy company, its farmers are also obliged to sell their milk only to Nestle. The local government owns Nestle shares, and the mayor also holds an important position in the international company.

As a consequence, the city's dairy farmers have suffered from very low prices for their milk, while the local authority is busy sending public authorities and livestock department bureaucrats to catch farmers who try to sell elsewhere.

Big cake, many slices

Initially, Twin City's farmers benefited from the arrival of the Nestle factory, and the number of dairy farmers subsequently soared. Competition, of course, brought down prices. But the worst came with the poisonous melamine milk scandal in 2008, in which Chinese farmers were found to have added the chemical melamine to dairy products to artificially inflate the percieved protein content. Six infants who drank contaminated formula died as a result, and a further 860 infants were hopsitalized. Although the tainted milk came from a different company in another region, Nestle's factory in Twin City also tested positive for melamine. Since then, the purchasing price offered by Nestle plummeted, and within two years cow numbers dropped from 28,000 to 21,000. The price per liter is 20-60% less than elsewhere.

The cake that Nestle brought to Twin City started out big. The city received 60% of its tax revenue from Nestle in 2004. Even in 2010, it still accounts for nearly 20% of the city's total fiscal revenue. The problem is that the city's revenue is more or less equivalent to the farmers' lost income from the suppressed prices. In other words, what Nestle pays in taxes is robbed directly from the local farmers' pockets.

The Twin City's authorities thought they had created a cake that was big enough for everyone to share. But now the farmers feel they are suppling too many ingredients relative to the piece of the cake they get in return. They refuse to be exploited forever, no matter how big the cake is.

If the farmers are denied basic economic freedom, they will naturally choose an even more radical freedom - not to sell milk at all. And as everyone knows, you can't bake a cake without milk.

Read the original article in Chinese

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