Market research: Foreign companies in baby formula industry

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Fonterra’s milk powder food-safety scandal

  • On August 3th, 2013, Fonterra released to the press that some of its exported whey protein products may contain Clostridium botulinum, a bacteria that can cause botulism. Botulism is a paralytic illness that affects the nervous and respiratory systems and can cause death in some cases.
  • Fonterra attributes its contamination problem to a pipe that had not been sufficiently cleaned, adding that the company destroyed the pipe. Fonterra plans to ensure that within the next 48 hours the public is aware of the problem and that all questionable products are recalled.
  • China has banned only whey protein products and base powder formula used to manufacture infant formula. Fonterra said China has also increased inspection and supervision at the border for New Zealand dairy products, and indicated extra testing may be required.

Chinese government’s anti-trust punishment on six foreign brands

  • According to an announcement released by National Development and Reform Commission, six infant milk powder companies were fined a total of 668.7 million RMB for their monopolistic behavior and high-price fixing. These companies were accused of unjustifiably raising prices by 30% since 2008.
  • It is regarded as the largest fine China has ever issued for violations of its anti-monopoly regulations, even exceeding the amount Maotai Group (one of the most famous and expensive white wines in China) was fined in earlier this year.
  • As for the reason of punishment,
    • The government accused these foreign brands of strictly controlling the pricing strategy of downstream firms (distributors, supermarket) by offering bribes (which is called “vertical monopoly agreements”). This damaged the price competition among distributors with standard prices and damaged the interest of consumers. That is to say, if any distributor does not follow their pricing strategy, they would not receive kickback and commission from these foreign milk powder companies.
    • These foreign brands force distributors to synchronize their prices with them even if the suggested wholesale price referred from milk powder companies is not a fixed. If distributors fail to abide by these prices, companies threaten to end their contracts.
  • As for the specific punishment on each milk powder company, it is illustrated as following table.

 

Company Name Total amount of fine(million RMB) Compare to the pre. yr sale Comments from Chinese government
Biostime 162.9 6% Severe violationInactive self-rectification
MeadJohnson 203.76 4% Uncooperative attitude for investigationActive self-rectification

Dumex

171.99 3% Cooperative attitude for investigationActive self-rectification
Abbott Laboratories 77.34 3% NA
Friso 48.27 3% NA
Fonterra 4.47 3% NA
Wyeth

Exemption from punishment

Cooperate with government for anti-monopoly reportProvide key evidenceActive self-rectification
Beingmate
Meiji 

 

Sources:

Picture Source: Fonterra

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