SHANGHAI Oct 25 Japan's Meiji Holdings Co Ltd
said it would pull out of China's baby formula market,
the first international firm to retreat from the market
following a pricing crackdown and as Beijing moves to help local
firms compete with foreign rivals.
China is a magnet for foreign infant milk formula makers,
with the $12.4 billion market expected to double by 2017.
However, foreign firms have come under pressure amid a
crackdown on pricing and as authorities look to consolidate the
fragmented dairy sector.
Meiji said it could no longer stay in the market due to
intensifying competition as well as the rising cost of its
imported milk source from Australia. All of its four formula
brands in China use Australian milk.
"Under the harsh environment, continuing to use Australian
milk source is ... causing a severe impact on cost and revenue,"
its Shanghai-based dairy unit said in a statement posted on its
website on Thursday.
In August, China's National Development and Reform
Commission (NDRC) fined a group of mostly foreign milk powder
producers, including Danone SA, a total of $110
million for price-fixing.
Meiji, Nestle and Zhejiang Beingmate Scientific
Technology Industry and Trade Co Ltd were also
implicated, but escaped punishment for cooperating with the
Meiji cut prices on all its products by as much as 7 percent
at the time.
Meanwhile, China has emphasised its support for home-grown
firms, with local media saying the government will give 30
billion yuan ($4.93 billion) to Chinese milk powder makers to
help them compete with international rivals.
A Meiji official in Shanghai said the company would continue
with its confectionary business in China and would start selling
milk and yoghurt products by the end of the year.
Meiji, which entered China's formula market in 1997, has
been relying on Australian imports for its baby formulas since
2011 when China banned some dairy products from Japan following
a devastating earthquake and tsunami that destroyed a nuclear
power plant in Fukushima.
Foreign firms control around 40 percent of the baby formula
market in China (80 percent in the tier one cities such as
Beijing and Shanghai). Among the foreign brands, Mead Johnson
Nutrition Co holds the biggest share, followed by Nestle
and Danone, according to data from Rabobank and Euromonitor.