Time to buy shares in soy milk companies

Notice inside Starbucks store recommending soy milk

After Chinese government tests revealed that there was melamine not just in Sanlu brand baby formula but also liquid milk produced by China’s biggest dairy brands such as Yili, Mengniu and Bright, many stores have pulled all domestically produced milk from their shelves.

Starbucks, whose stores in China used Mengniu milk, has stopped serving dairy products entirely, offering customers only soy milk. Inside the stores, there a little notices “recommending” soy milk cappuccino (see photo at left taken in a Beijing Starbucks), but they are currently not offering any kind of real milk.

The scandal is a massive setback to China’s relatively new dairy industry, and to the foreign companies invested in it, such as New Zealand’s Fonterra which owns 43% of San Lu. The knock on effects of the scandal will probably impact the bottom lines of companies like Nestlé that sell a lot of dairy-based products.

But there are likely to be some winners at the end of this scandal:

– The nationalist sentiment that was building against Coca-Cola’s proposed acquisition of Huiyuan — China’s biggest fruit juice company — has dissipated as online discussion shifts from worries about foreigners taking domestic brands to worries that domestic brands can’t be trusted.

– Breast pumps and other breast feeding accessories may enjoy renewed popularity after several decades of Chinese mothers turning away from breast feeding in favor of powdered formula.

– Soy milk is going to enjoy a revival. Chinese people have been drinking soy milk for thousand of years; it still popular and is a good replacement for cow’s milk.

Below is a list of China’s top ten soy milks brands, according to Chinese brand ranking site Maigoo.cn:

维维 VV Group (also make dairy milk powder)

黑牛 Black Cow

杨协成 Yang Xiecheng (link to company description on third party website, in Chinese)

维他奶 Vitasoy (Hong Kong specialized in soy milk since 1940)

雅士利 Yashili (also a big milk company whose products were found to contain melamine)

雅芙 Affcet Foods

冰泉 Soyspring / Bingquan

力源 Liyuan

永和 Yong He (Yong He or Yung Ho is originally a Taiwanese chain of soy milk fast food stores, but the name is used by several different companies in China; it’s unclear which one the Maigoo.cn list refers to, link above is to Google search for 永和豆浆)

完达山 WonderSun (most of its business is dairy)

Note: There is nothing to stop providers of soy milk or soy proteins from adding melamine to these products, but as long as there isn’t a melamine soy milk scandal in the next few months, dairy milk will be the product that consumers view with suspicion.