Six dead babies - that's what it took to create a whole new market segment for New Zealand's dairy industry.
China's 2008 melamine scandal, which also left about 300,000 babies sick after the toxic chemical was illegally added into the country's milk supply, resulted in surging sales of imported infant formula as Chinese parents panicked about the quality of domestically sourced products.
In a rush to feed that demand, more than 100 baby milk brands - many with links to Chinese businesspeople - were created in New Zealand.
This country's advanced capabilities in contract packing and manufacturing meant you didn't need to start a factory, or even have an interest in one, to get in on the white goldrush.
Aspiring infant formula magnates - whose previous dairy experience extended no further than buying milk from the supermarket - could develop brands and become dairy exporters from the comfort of their own homes.
New Zealand's infant formula exports to China, which were worth just $515,000 in 2003, reached $107 million by 2012 and almost doubled to $200 million last year, despite Fonterra's botulism false alarm spooking Chinese consumers.
While that's only a small portion of our total dairy exports to China ($2.6 billion in 2012), it's been a fast growing and - crucially - value-added export trade.
But question marks are hanging over how many New Zealand brands will survive. Major changes are taking place in China as its Government pushes to restore consumers' confidence through regulatory changes and a massive consolidation of the world's fastest growing infant formula market, where retail sales are predicted to reach US$25 billion by 2017.
Today, four officials from China's Certification and Accreditation Administration are expected to begin an audit of seven local baby formula and dairy manufacturing facilities, including some operated by Fonterra and Westland Milk Products.
The inspectors' arrival comes ahead of a new requirement that all baby milk makers exporting to China be registered with the Chinese Government by May 1.
While audits are commonplace in the food industry, it's the first time Chinese officials have audited New Zealand dairy manufacturing facilities and the industry is on edge about the possible outcome.
The Ministry for Primary Industries even recommended that manufacturers travel to Beijing, at their own cost, to meet the audit delegation before they left China. Companies have also been advised by the ministry to think about any "refreshments" they may provide to the visiting auditors and to "make sure that any recent corrective actions have been resolved and be able to show what was done".
Rumours swirling around the market include speculation that our biggest trading partner may allow only 10 New Zealand formula brands into China, or that only brands with retail sales in this country may become eligible for sale in the Chinese market.
The anxiety within companies is highlighted in the notes of a meeting held last month between manufacturers and the Ministry for Primary Industries, obtained by the Herald.
According to the notes, Howard Staveley, the ministry's infant formula programme manager, highlighted a "number of significant uncertainties" around the registration process, including whether restrictions would be placed on the number of brands and whether a ban on contract manufacturing in China would also apply to imports.
The meeting notes also state: "While there are some uncertainties, rumours such as a limitation on the number of brands have not been substantiated in a formal government-to-government communication."
In a question-and-answer session, one company asked whether it was true that three out of seven French plants failed their Chinese audits, but the ministry was unable to confirm that. The ministry said it did not want manufacturers to fail the audits, as there were "some risks" and it was unclear how the Chinese would deal with factory failures.
As things stand, China's booming baby milk market is a global oddity - a fact highlighted in a report by Auckland market research firm Coriolis.
Across much of the planet this lucrative segment of the dairy trade is controlled by a small number of brands owned by five major multinational companies: Danone (based in France), Nestle (Switzerland), Abbott, Mead Johnson and Heinz (all US).
"It doesn't matter if you're a one party, pseudo-communist state, or you're a completely free market - dead babies are not a good thing. You've got to be seen to be addressing the problem."
Nestle, for example, has a whopping 74 per cent share of India's formula market, says the Coriolis report, while Danone, through its Karicare brand, commands a 64 per cent share of the New Zealand trade.
The Chinese market, on the other hand, is much less consolidated.
In the world's second biggest economy the multinational giants are going head-to-head with large Chinese dairy companies and a bevy of smaller formula players, both domestic and foreign, including the New Zealand marketing- only brands - which contract out the entire manufacturing process - that emerged after the melamine disaster.
The report says the unconsolidated, "wild west" conditions in the Chinese market were one of the main reasons for the explosion in the number of infant formula brands being exported from this country.
"Much, if not all of the current action and excitement in the New Zealand infant formula industry can be seen as a result of this situation in China," the report says.
"While the future is full of opportunities, there are clouds on the horizon, particularly in China."
Coriolis analyst Tim Morris says the Chinese Government is all too aware of the political minefield that is infant formula - and food safety in general - in China. "It doesn't matter if you're a one party, pseudo-communist state, or you're a completely free market - dead babies are not a good thing," Morris says. "You've got to be seen to be addressing the problem."
The practices of some local infant formula exporters caused a few headaches last year when their activities were latched upon by China's state-run CCTV news channel, which exposed false claims that some export-only brands were making in their Chinese marketing, about being well-known in New Zealand.
CCTV also ran stories that questioned whether New Zealand's contract manufacturing system was producing brands that Chinese parents could trust.
Cynics were quick to label the reports political spin manufactured by China's Government, which was about to launch its plan to rebuild its domestic infant formula industry - decimated by the melamine scandal - by consolidating the market and supporting about five Chinese "national champion" baby milk makers.
Whichever way you look at it, New Zealand's reputation for safe milk products was dragged through the mud on millions of television screens across our biggest export market. A couple of months later Fonterra further fanned the flames with its botulism announcement.
Morris was surprised to discover, while researching the Coriolis report, one infant formula exporter registered to the address of a low-end motel in West Auckland.
"It's a market anomaly that that kind of thing can go on for any length of time," Morris says. "It was a post-melamine, China anomaly. China's [infant formula market] is now normalising back to what the rest of the world looks like."
Where would New Zealand fit into a consolidated Chinese baby milk market?
"We're in shakeout mode right now," says Morris. "Ninety to 95 per cent of the 100 plus [marketing-only] brands are going to be gone."
However, he's quick to point out that small contract manufactured brands - which he refers to as "rats and mice" - account for only a small proportion of New Zealand's total baby milk output. Morris reckons the big local players are not facing such a precarious future.
Shakeout time for small players
Fonterra contract packs infant formula for Nestle and Heinz, says the Coriolis report, as well as supplying bulk baby milk base powder and other ingredients to major multinationals. The dairy co-op, New Zealand's biggest company, also launched its own infant formula brand, Anmum, in China last year.
Dairy processor Synlait produces an infant formula brand called Pure Canterbury that is marketed in China by the company's cornerstone shareholder, Chinese dairy giant Bright Dairy. The Canterbury firm also produces A2's Platinum formula brand under contract. A2 has signed up state-owned China State Farm as its Chinese distributor, which has established a distribution network for the NZX-listed company across 13 provinces.
And New Zealand's second-biggest dairy co-operative, Westland Milk Products, exports bulk formula to China from its $25 million infant nutrition plant in Hokitika.
Chinese dairy giants Yili and Yashili - two of those national champions the Chinese Government likes to talk about - are also shelling out about $400 million between them to establish infant formula plants in Canterbury and Pokeno, respectively.
"It's been the little guys that have brought about the innovation and any of the problems we've seen in our industry in the last 12 months have been brought about by the big guys."
"The vast majority of our infant formula exports are safe," says Morris.
Westland chief executive Rod Quin says the Chinese Government has indicated that it wants to do business with dairy manufacturers which control the entire supply chain, from the cows through to the consumer.
That puts companies like Westland, Fonterra and Synlait - which control their own milk supply - in a good position to deal with the regulatory changes, he says. "We think that's a real opportunity for Westland, but quite how it plays out and the requirements is still the area that everybody's asking about."
A2 managing director Geoffrey Babidge expressed a similar view when the company reported its interim result last week. "We are hopeful that we will be a winner out of changes [in China] that will emerge over time," he said.
Kelvin Wickham, Fonterra's Shanghai-based president for greater China and India, says the new regulations mean consolidation in the Chinese infant formula market is a certainty. "There's still opportunities, but not everyone will make it," Wickham says. "The standards and expectations that are required - the auditing and the checks and balances - will mean that you're going to have to have sufficient scale [to stay in the market]."
But the chairman of the Infant Formula Exporters Association, Michael Barnett, whose group represents small-scale operators, says there is a future for the "little guys" in a consolidated Chinese market.
"It's been the little guys that have brought about the innovation and any of the problems we've seen in our industry in the last 12 months have been brought about by the big guys," Barnett says.
He says China is unlikely to regulate infant formula imports as rigorously as its domestic formula market.
Guy Wills, general manager of New Image Group, an infant formula contract manufacturer, says the company has already seen a reduction in the number of brands it produces for China.
He says the Chinese regulatory changes will greatly reduce the overall number of New Zealand-made brands being exported to China.
"That trend is for some consolidation of infant formula brands in more mature markets," Wills says. "We do not expect China to be materially different as it matures. Regulatory action may, of course, hasten the market process." Auckland-based New Image, he says, isn't concerned about the changing environment.
Jan Carey, chief executive of the Infant Nutrition Council, whose membership includes Westland, New Image and Fonterra, says China is still a major opportunity for the New Zealand infant formula industry.
"We've got really good quality products and really good systems and I think there's no reason why the Chinese won't want to keep on using our milk products because they're good and they need them."
Small players still optimistic
Despite high levels of uncertainty, small scale infant formula exporters remain confident about their prospects in China.
Auckland's Fresco Nutrition sells its goat milk infant formula - contract manufactured by New Image Group - in New Zealand supermarkets and is gearing up to launch in China.
Managing director Gregg Wycherley says having retail sales in New Zealand, as well as a niche product, should bolster his brand when it makes its Chinese debut in Zhejiang province, near Shanghai, in May.
"There's the good little guys and the bad little guys. The bad guys were the cowboys."
"Obviously we're in the same boat as everyone else - just hoping that our manufacturing facility comes through [this month's audit] okay, but we're quietly confident that will all be fine," he says. 'We're not part of the general scrum of little competing cow brands."
Marco Marinkovich, founder of Auckland infant formula exporter KiwiMilk Nutrition, says it will be positive for New Zealand if the "bad little guys" don't survive the changes taking place in the Chinese market.
"There's the good little guys and the bad little guys," he says. "The bad guys were the cowboys."
Marinkovich says Fonterra's botulism botch-up, which hit infant formula exporters hard, would have already reduced the number of New Zealand-made brands available in China.
"The Fonterra issue has actually made the regulations tougher but it's going to get rid of the cowboys and I think that's good for New Zealand."
While KiwiMilk was affected by the false food scare, Marinkovich says demand has picked up.
Simon Page, managing director of Auckland's Biopure Health, which sells its Infapure formula brand through its New Zealand Milk Bar retail outlets in China's Sichuan province, says all governments apply strict regulations to products like baby milk.
"I'm not worried by this, as long as we - or any company - provide high-quality products and comply with relevant standards, then there is nothing to worry about."