For a healthy milk food competition

By Zhu Jin China Daily, July 18, 2013

The government recently launched an investigation into the alleged monopoly practices of some foreign baby milk formula producers, which is widely viewed as an official intervention to protect domestic companies.

The prices of the baby milk powder produced by some foreign brands have increased by up to 60 percent. But this is only a symptom of the problem facing domestic producers. Foreign brands have raised their prices because of the demand for their products. Foreign baby milk formulas cost twice as much as domestic products, but Chinese parents still buy them because they believe them to be safer than local ones.

Despite the growing market for baby milk formula, domestic brands have failed to cash in on the demand because they have lost the trust of consumers after a series of serious food safety scandals since 2008, when at least six children died and thousands fell ill after consuming chemical-contaminated milk powder. Although the market for milk formula grew by 25 percent from 2011 to 2012, the sales of Mengniu, one of China's largest producers of dairy products, declined by 3.5 percent, because it was one of companies involved in the 2008 milk scandal.

The Chinese mainland market for infant formula is huge. It has grown by more than 20 percent a year since 2007 - even in 2008, which saw the worst baby food scandal, the market grew by 33 percent. The prime reason for the growing infant formula market is that only 28 percent of the infants aged up to 6 months are breast-fed on the mainland and the number of mothers choosing to breast-feed is declining.

Euromonitor estimates that the market for baby milk formula will double in four years and will be worth $25 billion, with sales on the mainland accounting for 50 percent of the global market.

But despite allegations that some foreign brands have been taking advantage of parents' growing trust in the safety of their products, consumers are not likely to fall back on domestic brands until they are convinced that their products are as safe as those produced by their foreign counterparts. That's why Mengniu recently finalized a joint venture agreement with French food producer Danone, which realized 16.1 percent increase in its infant nutrition products globally in the first quarter of 2013.

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