* Nestle's Wyeth Nutrition to cut prices from July 8
* Danone's Dumex preparing a price cut proposal
* Move comes amid Chinese antitrust investigation
By Donny Kwok
HONG KONG, July 3 Swiss food company Nestle
and French rival Danone are cutting the
price of infant formula milk in China after Beijing launched an
investigation into possible price-fixing and anti-competitive
behaviour in the sector.
Wyeth Nutrition, which Nestle bought last year, said on
Wednesday it had been cooperating with a probe by China's
National Development and Reform Commission (NDRC) and was
responding by cutting prices and improving sales and marketing
Danone said in an e-mail to Reuters that its Dumex business
had also been cooperating with the NDRC and was preparing a
price-cut proposal whose details would be disclosed later.
Both companies, along with Mead Johnson Nutrition Co
and Abbott Laboratories, said on Tuesday they were being
investigated by the NDRC.
Analysts see the probe as possibly part of a broader Chinese
plan to boost consumption of local infant milk products. Mothers
turned away from Chinese milk powder in 2008 when infant formula
tainted with the industrial compound melamine killed at least
six babies and made thousands sick with kidney stones.
China has since made efforts to crack down on persistent
food safety problems that have included chemical-laced pork and
infant milk contaminated with cancer-causing agents.
"Wyeth Nutrition decided to implement a price reduction of
key products from July 8 through 2014. The average reduction
will be at 11 percent with the biggest single product price
reduction at 20 percent," it said without giving more details.
The company said it would not raise prices on any new
products over the next year.
Analysts said the investigation could result in fines and
tougher rules governing imports into an infant milk market set
to grow to $25 billion by 2017. The firms could face fines
ranging from 1 percent to 10 percent of their annual sales, the
state-run Xinhua news agency quoted experts as saying.
"It is part of the whole idea of a consolidation process,"
said Renee Tai, a Hong Kong-based analyst at regional brokerage
UOB Kay Hian. "It is pointing the same direction of supporting
local producers, making it difficult for importers."
Some Chinese infant formula companies have started forming
partnerships with foreign firms to try to boost brand
recognition and gain technical know-how.
Foreign brands may also soon have to rely on their Chinese
partners if they want greater access to the Chinese market.
The Chinese government has expressed an interest in bringing
the supply chain under the control of Chinese firms as part of
its goal of reducing the number of local infant formula
producers to 10 from more than 200 within two years.
The Ministry of Industry and Information Technology said in
June that THE integration of the milk powder industry was
expected to involve 10 large companies with revenues exceeding 2
billion yuan in two years, according to the China Daily.
"They have to boost local consumption before they can
proceed with the consolidation more smoothly," said one retail
analyst at a regional brokerage, who was not authorised to speak
to the media.
As part of this consolidation, China Mengniu Dairy Co Ltd
signed a second takeover deal in a month in June to
buy Carlyle-backed Yashili International Holdings Ltd
in a deal worth about HK$12.5 billion ($1.6 billion) as part of
a plan to expand its milk powder business.
Domestic milk powder brands want to appeal to the rapidly
growing middle-class, which can afford the pricier baby formulas
made by their international rivals.
At supermarkets in big cities like Shanghai, a 900-gram tin
of infant formula made by an international firm costs between
175 yuan ($29) and 275 yuan ($45), compared to about 100 yuan
($16) for domestic milk powder in lower-tier cities in China.
Milk producers boasting foreign ingredients have raised
prices to the same range as global brands in an effort to
distinguish themselves from the local crowd.
On Wednesday, China's official Communist Party mouthpiece,
the People's Daily, said foreign and local players were equal
before the law but foreign brands should not raise prices often
without regard to the law and abuse their competitive advantage.
"From 2008, some foreign milk powder brands have increased
their prices by up to 30 percent, nearly double that of local
milk powder brands," an editorial said, adding if local brands
raised standards and won trust, they could replace foreign
brands as the favourites.
Internet commentators on China's Sina Weibo were not so
sure. "This is practically forcing Chinese children to drink
locally made milk," said one Weibo user. "It's really shameful
that we can't produce good milk and now we are preventing others
from selling it."
But analysts said it would be surprising if the major brands
took a hit on market share.
"It is hard to believe that domestic challengers are going
to take over from Danone and Nestle in the next couple of
years," Kepler Cheuvreux analyst Jon Cox said. "That is some
time away because the issue is that consumers don't trust the
product rather than the absence of local competitors," he said.