WELLINGTON, July 18 New Zealand's Fonterra
- the world's largest dairy producer - will cut the
price of one of it milk formula products in China, joining a
growing list of firms responding to Beijing's investigation into
Auckland-based Fonterra said it will reduce prices by up to
9 percent for its Anmum brand of maternal milk products from
Aug. 1. The move comes as the company prepares to enter China's
booming branded infant milk formula market later this year.
A number of international milk powder producers have cut
prices in China after the country's top economic planning agency
said earlier this month it was investigating possible
price-fixing and anti-competitive behaviour.
Fonterra's managing director for China and India, Kelvin
Wickham, said in a statement the move was aimed "to better meet
consumer needs in light of recent industry-wide price
Abbott Laboratories, French food giant Danone SA
, Nestle SA, Mead Johnson Nutrition Co
and Hong Kong-listed Biostime International Holdings Ltd
have already announced reductions of up to 20 percent
on milk formula prices in China.
Drug pricing in China has also come under severe scrutiny,
with China's top regulators targeting British drugmaker
GlaxoSmithKline PLC, and announcing a crackdown on
pricing in the wider pharmaceutical market.
China is a major export market for Fonterra. As well as its
Anmum products, which are aimed at expectant mothers, it
supplies the vast majority of milk powder imported by local
producers for use in products ranging from Chinese branded milk
formula to confectionary.
Fonterra said earlier this month that Beijing's review of
foreign milk formula brands had not affected its plan to launch
its own branded infant milk formula in the country this year.
The New Zealand firm is playing catch-up with other global dairy
groups already operating in the high-margin Chinese market.
Dairy economists said the price cuts would shrink the fat
margins seen on foreign-branded formula products in China, where
tins costing less than $10 to produce can be sold for upwards of
But the reduction was unlikely to push down global milk
powder prices much, given growing demand for dairy products,
particularly from emerging Asian countries.
"Formula producers have seen very healthy margins over the
past few years and some of that is going to come out," said Con
Williams, rural economist at ANZ in Wellington.
"How much that flows into weaker demand for wholesale
products such as skim milk or whole milk powder, I don't think
it will be substantial."
The announced price cuts have done little to slow a rise in
international prices for whole and skim milk powder, the
dominant ingredients in infant milk formula.
At the latest global dairy auction held earlier this week by
Fonterra, prices for whole milk powder rose 7.7 percent, while
skim milk powder prices rose 3.3 percent.
Whole milk powder prices have surged 65 percent so far this
year, reflecting growing demand for processed dairy products,
while skim milk powder prices are up 38 percent.
Demand for international milk powder spiked in China after
parents turned away from local products in 2008 when infant
formula tainted with the industrial compound melamine killed at
least six babies and made thousands sick with kidney stones.
Fonterra had held a stake in Chinese dairy company Sanlu,
which collapsed after it was discovered to have used the
compound in its products.