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(Bloomberg) -- Contaminated baby formula making headlines in France could spell trouble for the country’s sales to China, the world’s biggest market for infant milk, industry observers said.
French health authorities reported that 35 children fell ill last year after eating baby food from closely held dairy company Lactalis. Economy Minister Bruno Le Maire slammed the company on Thursday, saying Lactalis had failed in its recall of salmonella-contaminated formula and suggesting the case had implications for French dairy exports.
“France capitalizes on its reputation of excellence and quality,” said Pierre Begoc, international director at farm and food-industry adviser Agritel. “Current events are bad news for the French dairy industry in general.”
China accounts for 10 percent of French exports of baby formula, according to data provided by Agritel. The Chinese market for infant milk remains dominated by foreign companies including France’s Danone SA, after domestic melamine-tainted formula led to the deaths of at least six babies and sickened tens of thousands in 2008.
Baby milk is a high value-added export product for France, raking in 690 million euros ($837 million) in 2015, according to the most recent data published by industry group CNIEL. It was a sizable chunk of the total dairy exports of 6.92 billion euros even though formula made up less than 3 percent of shipments by volume.
Lactalis started providing babies in China with its premium infant-milk power and cereals brand Celia in 2011, touting the fact the food is “100% produced in France.”
“The Chinese market is very sensitive to any type of scandal,” said Manon Sailley, a dairy-market analyst at Offre & Demande Agricole. The fact that Lactalis is French could potentially affect its compatriot Danone in China, she said. “This is more psychological and about consumer sentiment.”
Danone didn’t immediately reply to voicemail and email messages for comment.
Switzerland’s Nestle SA is the biggest infant-formula supplier in China with 17 percent market share, followed by Danone with 11 percent and Reckitt Benckiser with 9.4 percent, according to researcher Euromonitor.
The Chinese retail market for formula was worth $18.9 billion in 2017, or 40 percent of the global market, Euromonitor data show.
The effect on Danone may remain limited because Lactalis is not a major player in the Chinese formula market, and the French scandal hasn’t been major news in Chinese media, according to Kevin Bellamy, global sector head for dairy at Rabobank.
“It’s definitely a Lactalis problem at the moment,” Bellamy said. “A brand that’s tainted this way, that’s going to hurt that brand. But every company will be looking to reassure customers.”
France’s dairy industry will need to be transparent about controls and how it’s addressing possible shortcomings, and any effect on French formula exports may only become clear in coming days and weeks, according to Agritel’s Begoc.
“China is a big chunk of French baby-formula exports,” Begoc said. “Our clients have to be reassured that the quality is there.”
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