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Catalysing Change: China Mengniu’s Journey Towards Responsible Dairy

March 12, 2024

by Kate Blaszak

China has seen a surge in dairy production and consumption in recent years. Given the sector’s high environmental and social impacts, this is driving a greater emphasis on food safety and corporate sustainability. In collaboration with institutional investors on the Asia Protein Transition (APT) Platform, Asia Research & Engagement (ARE) supported China Mengniu to extend its journey towards responsible dairy production. This has already resulted in the company setting out a stronger approach with new policies and commitments announced for animal welfare and forest related supply chain issues in 2023 and 2024.

The APT Platform collaborates with institutional investors representing over US$3 trillion. Working across 10 Asian markets, it provides research and tools for companies and banks to adopt responsible and sustainable pathways for protein supply. The Platform covers many issues including greenhouse gas emissions, deforestation, antibiotic resistance, and animal welfare. The Platform provides a case for change through direct engagement, investor group meetings, AGM attendance, company analysis, and publishing issue-based research.

China plays a huge role in global food supply chains for animal proteins, making it a critical country for efforts to improve sustainability. The country is a major importer of commodities linked to deforestation, including soy from South America and palm meal and palm oil, often sourced from Southeast Asia. It is one of the largest users of antibiotics and offers its huge farm animal population little protection through limited regulation.

The Platform serves as a forum for addressing these pressing issues, catalysing change with companies, and offering direct engagement in China through ARE’s new Beijing subsidiary.

A milestone ambition for forests

In late 2022, ARE China Director Helen Jia, facilitated a pivotal meeting between several Platform investors and China Mengniu Dairy Company. The investors requested that China Mengniu consider implementing the Platform’s list of priorities.[1] In the following months, ARE provided tailored guidance and tools to assist this process.

China Mengniu announced its ground-breaking Forest Protection Policy in April 2023. The policy seeks to avoid deforestation risks from its direct operations and most importantly sets out a time-based commitment to zero deforestation from its supply chains, as requested by Platform investors. The policy covers soybean meal (used for dairy feed), palm oil, and timber.

China Mengniu subsequently signed an MOU worth over US $30 million with COFCO International for certified soy sourcing from Brazil to China, with a clear “deforestation- and conversion-free” clause, setting a new standard for sustainable commodity sourcing in the region.

These commitments represent a new milestone for a leading dairy company in China and Asia and have been partly attributed to ARE’s collaborative engagement. The Platform investors have welcomed the company’s leadership and continue to support the company in its transition plans.

Tina Chang , Associate Director (Hong Kong) at Fidelity International said: “Fidelity welcomes the leading actions that China Mengniu is taking to actively reduce risks in their dairy sourcing. These outcomes show that the APT Platform can collaborate effectively with Chinese companies to engage and support them towards greater protein sustainability.”

Better consideration for farm animals

China Mengniu published its Animal Welfare Policy in early 2024. This policy aligns with international standards, including provisions for responsible antibiotic use. ARE provided support to develop the internal case for change, highlighting links between good dairy welfare, reduced antibiotic use, and risks of antibiotic resistance. ARE and investors advised on the draft policy before finalisation, providing policy guidance, templates, and examples of good practice at global peers.

The Platform asks companies to establish an animal welfare policy that works towards Farm Animal Minimum Responsible Standards (FARMS), which is designed for financial institutions and food corporations. China Mengniu’s animal welfare policy aligns with most FARMS dairy standards [2] and includes detailed dairy welfare provisions to apply across the company’s sourcing and ranches, commitment towards training, and zero tolerance for intentional abuse of animals. It also includes a concise, progressive, and responsible antibiotic use statement:

Use antibiotics responsibly, limit the use of antibiotics to the treatment of animal diseases, and refrain from prophylactic and other uses.

This animal welfare policy sets a precedent in China and Asia, marking the first instance of a major listed food company aligning its supply chain welfare with FARMS dairy. By implementing these standards companies can work towards independently certifying relevant dairy products by Certified Humane criteria in China [3].

ARE’s next steps as part of our collaborative engagement with China Mengniu, will be to advise the company on key welfare outcome indicators to enable meaningful performance disclosure as part of their sustainability reporting. Additionally, we will continue to engage peer companies in China and Asia with significant animal protein production, manufacturing, or retailing.

The power of dialogue

Helen Jia, ARE China Director, emphasises the importance of collaborative engagement: “Our meetings provide a trusted space for investors to discuss concerns and opportunities with companies. By leveraging our company-level analysis and cultural sensitivity, we help companies understand the ‘Why’ behind change and then move from dialogue to action. Balancing diverse needs for mutually beneficial outcomes is key to success.”

The above successes demonstrate ARE’s theory of change through collaborative engagement. They also provide milestones for other Asian-listed companies to learn from and so achieve similar advancements.

Looking ahead, ARE’s next protein publication, Asia Protein Buyer 100, has assessed listed retailers, manufacturers, restaurants, and hotels across 10 Asian markets against all the APT Platform’s expected disclosures. This will further drive the region to make progress on its protein transition. We welcome any opportunity to engage buyers, producers, banks, and investors across protein supply chains in the coming months.

 
ARE’s Protein Transition Research Manager, Dave Luo, visited an organic farm in China that supplies China Mengniu, June 2023.

[1] Platform investor priorities for 2023 and 2024 are the ‘expected disclosures’ 4.3, 5.2, 6.2, 7.2, 10.2 found at https://asiareengage.com/wp-content/uploads/2022/12/Expected-Disclosures-and-Recommended-Goals-for-Asian-Food-Companies.pdf Along with having submitted for SBTi (Science Based Target Initiative) validated emissions reduction target, the company has essentially met expectations 4.3, 5.2, 6.2, 7.2.

[2] https://www.farmsinitiative.org/_files/ugd/a0f227_65d8071f7b104489b723ae828f928f65.pdf (these and other FARMS species standards are available also in Chinese from ARE)

[3] Certified Humane is an international, independent, science-based welfare certification body, with standards and assessors available in Chinese. https://certifiedhumane.org/our-standards/ 

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