Want China Times, Xinhua 2013-07-06
A probe into possible price fixing by foreign and domestic baby formula firms will lead to the consolidation of the dairy sector, experts have said.
Foreign-brand infant formula has been the most popular in China since the melamine scandal of 2008. (Photo/CFP) |
A probe into possible price fixing by foreign and domestic baby formula firms will lead to the consolidation of the dairy sector, experts have said.
The
National Development and Reform Commission is investigating foreign baby
formula companies, including Nestle, Mead Johnson and Wyeth, as well as
domestic company Biostime, over alleged antitrust violations.
The
companies are believed to have a monopoly in the Chinese market and have been
accused of violating anti-monopoly laws via high prices and limited market
competition, according to the commission.
The
commission said it will continue the probe, warning that companies that are
found to have violated the law will be punished and could face fines ranging
from 1%-10% of their annual sales.
Nestle,
Wyeth and Mead Johnson have confirmed that their companies have been actively
cooperating with the investigation.
Wyeth
announced Wednesday that it will cut prices for some of its baby formula
products by an average of 11%, as well as freeze prices on all new products for
the next year. The price cuts will take effect on July 8, the company said.
Biostime
said in a Tuesday statement that it is cooperating with the investigation and
has decided to adjust its sales and marketing practices following the inquiry.
Wang
Dingmian, a researcher who has tracked the dairy industry for years, said the
probe provides an opportunity for domestic dairy companies to speed up
restructuring and improve competitiveness by producing trustworthy products
with affordable prices.
Demand for
baby formula is booming in China, but confidence in domestic brands has
plummeted since 2008, when melamine-tainted milk killed six infants and made
300,000 others ill.
Chinese
from the mainland have since flocked to Hong Kong and other overseas markets to
buy foreign-brand baby formula over safety concerns about domestic dairy
companies.
Statistics
from AC Nelson, a New York-based market survey and research company, showed
that four foreign brands, including Mead Johnson and Wyeth, accounted for about
half of the total sales of baby formula in the Chinese market in 2012.
Some
foreign brands have increased their prices by up to 30% since 2008, with some
prices reaching nearly twice as much as domestic brands, according to the National
Development and Reform Commission's data.
At
supermarkets in big cities like Beijing, a 900-gram container of baby formula
made by an international firm costs between 200 yuan and 280 yuan
(US$32.40-$45.65), compared to about 100 yuan (US$16.20) for domestic baby
formula in smaller cities.
The
commission's probe is a warning for foreign formula companies whose practices
have hindered market competition, as well as consumers' interests, Wang said.
However,
the investigation will not necessarily ensure a promising future for domestic
dairy companies, said Chen Lianfang, a senior dairy analyst with CnAgri, a
Beijing-based agriculture consulting company. "Price cuts for foreign baby
formula will only create a limited profit margin for domestic companies, as the
cost of production is still rising and domestic productivity remains low,"
Chen said.
As of May,
China had 127 baby formula producers with a combined annual output of 600,000
tonnes of formula. Only three of the companies produce more than 30,000 tonnes
annual.
The country
imported 240,000 tonnes of infant formula in the first quarter of this year, up
23.7% from the same period of last year, indicating consistently huge demand
from Chinese parents for foreign-branded baby formula, data from the General
Administration of Customs showed.
To reduce
the country's reliance on foreign infant formula, Chen said, the price probe
should be followed by industry consolidation and government supervision in
order to restore market confidence in domestic baby formula.
China
Mengniu Dairy Co has taken the first step to regain consumer confidence in the
wakes of safety scandals surrounding the country's milk and infant formula
industry. The company signed a deal in mid-June to buy Guangdong-based Yashili
International Holdings Ltd. for over HK$11 billion (US$1.42 billion), marking
the most costly merger in China's domestic dairy sector.
Furthermore,
the government has taken a series of measures, such as encouraging
technological restructuring and establishing a quality assurance system, to
improve the quality of domestic baby formula.
"The
most effective way to boost the dairy sector is to improve the quality of its
products and raise public confidence in domestic formula producers," Chen
said.
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