Chinese probe forces baby milk price cut

Demand for Western formulas in China has rocketed since tainted local supplies caused the deaths of infants in 2008 Reuters

Swiss food giant Nestlé has pledged to slash the price of its baby milk formulas sold in China by as much as 20 per cent following a Chinese government investigation into alleged price fixing.

Demand for Western formulas in China has rocketed since tainted local supplies caused the deaths of infants in 2008. But the Chinese authorities suspected that foreign firms were taking unfair advantage of the surge in interest for their products.

Vevey-based Nestlé responded to the probe by announcing a range of price cuts to its Wyeth Nutrition products. Nestlé bought Wyeth from United States firm Pfizer for $12 billion (CHF11 billion) last year in a bid to boost its global footprint in infant nutrition, especially in Asia.

Nestlé said in a statement that it was cooperating with the Chinese investigation and had “decided to improve certain sales and marketing practices”. The company pledged to reduce prices from Friday and refrain from raising them until the end of 2014.

“In order to meet concerns with respect to the affordability of infant formula to the Chinese consumer, and provide quality products at appropriate and affordable prices, Wyeth Nutrition decided to implement a price reduction of key products,” the statement read. “The average reduction will be at 11 per cent with the biggest single product price reduction at 20 per cent.”

“Naturally milk pricing should be a market activity rather than a government intervention,” Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultant, told the China Daily newspaper.

“But current retail prices for many imported milk powders don’t reflect their real prices, so it is natural for the government to protect the legitimate interests of consumers and further consolidate the industry.”

Sales boom

Western firms are thought to account for half of all baby milk formula sales in China and prices are estimated to have risen 30 per cent since 2008.

The Chinese authorities are also investigating Danone, Mead Johnson Nutrition, Abbott Laboratories and local company Biostime International Holdings for allegedly taking advantage of their monopoly to artificially inflate prices.

Danone has also hinted that it may cut prices, but Nestlé has taken the lead with a definite statement of intent.

The interest in Western baby milk formulas has reached such a peak that suppliers have taken to emptying supermarket shelves in other countries, shipping them to China and selling them online.

Market research company Euromonitor International estimates sales of baby food products will reach nearly $32 billion (CHF30.4 billion) in China by the end of 2017 from $16.4 billion this year and $5.8 billion in 2008.

By the end of 2012 Nestlé accounted for a 3.2 per cent Chinese market share by retail sales with Pfizer products (fully integrated into Nestlé since June of this year) taking a further 6.9 per cent, according to Euromonitor.