For a healthy milk food competition

By Zhu Jin China Daily, July 18, 2013

However, rebuilding their reputations is likely to be an uphill task for many domestic brands.

The anti-monopoly investigation launched by the National Development and Reform Commission, China's top planning body, focuses on the alleged price fixing and anti-competition practices of some baby milk formula producers. But the bottom line is, consumers care more about the safety of their children than the price of infant formula, which means that government intervention to ensure the safety of domestic products is more important than the current price-fixing probe. In fact, government intervention could actually prove counterproductive if it is only aimed at helping domestic brands.

Jian Aihua, a food industry researcher with CIConsulting, says the high price of foreign brands has worked to the advantage of domestic milk powder producers in second- and third-tier cities where the average income is lower than in first-tier cities. "If the prices of infant formulas produced by foreign brands drop (foreign companies have responded to the anti-trust probe by lowering prices by up to 20 percent) and domestic brands cannot win back the trust of consumers, the market share of foreign brands, which is now less than 50 percent, will become larger." Jian says.

It is not just the safety issue that is a challenge for domestic companies. Growing incomes in China and its expanding middle class may also strengthen customers' preference for foreign brands, says Mei Xinyu, a senior researcher with the Ministry of Commerce. With China's per capita income rising, China's middle class consumers are simply following the global consumption trend by preferring better, safer infant formulas.

The government should focus on protecting consumers' rights and interests, instead of only trying to protect domestic milk formula producers. The rising prices of foreign infant formulas can be explained by a simple law of economics: the demand for them is higher than the supply. Therefore, the government has to take measures to ensure domestic infant formulas are absolutely safe to enable domestic brands to win back people's trust and compete with their foreign counterparts on the strength of their products' quality as well as price.

The author is a writer with China Daily.


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