September 19, 2008 / 8:13 AM / 11 years ago

Foreign firms gain from China milk powder scandal

BEIJING (Reuters) - Foreign milk powder makers in China are set to cement their dominant market position as a result of a widening scandal involving contaminated powder made by leading domestic dairy groups.

Four children have died from drinking milk powder laced with melamine, a toxic substance banned in food that can make protein levels appear higher than they are.

Nearly 10 percent of liquid milk batches sampled from Mengniu Dairy and Inner Mongolia Yili Industrial Group Co Ltd contained melamine, the General Administration of Quality Supervision, Inspection and Quarantine found.

Several samples of milk from the Bright dairy group also contained the substance, the watchdog said.

The scandal will definitely hurt local producers as consumers shun domestic dairy products, said Luo Le, an analyst with Roth Capital Partners in Shanghai.

“It’s a big blow to people’s confidence in local diary products,” Luo said.

Yili, a Beijing Olympic Games sponsor, also faces a recall in Hong Kong, where authorities found eight of its 30 products, including ice-cream and yoghurt ice bars, contained melamine.

China’s overall diary market is expected to be worth $20 billion by 2010, according to a projection by McKinsey.

MeadJohnson Nutritionals, a unit of Bristol-Myers Squibb, is the leader in the high-end infant formula market with a 25 percent share.

Wyeth and Dumex, the powdered-milk unit of France’s Danone, have 20 percent and 12 percent of the market, respectively, according to market research firm CTR in Beijing.

Most overseas milk powder companies with operations in China assured the public that their products are free of melamine.

They also promised not to raise prices to take advantage of their domestic rivals’ troubles.

Dumex said it would not increase prices unless raw material costs went up sharply.

“We think it would be inappropriate to raise the prices of our products in the special circumstances that the industry is currently in,” the company said in a statement on its website.

Some Chinese customers have accused MeadJohnson Nutritionals of taking advantage of the crisis by raising prices, but the firm said the launch of a new, higher-priced product happened to coincide with the melamine scare.

MeadJohnson started selling a new powdered milk with enhanced formula on September 11, the same day that the first death due to tainted milk powder was reported, a company official said.

“We did not raise the price of our old products. Currently, we have both old and new products on the shelf,” she said.

Other foreign food companies, including Wyeth, Abbott Nutrition and Nestle, have made similar price pledges, the official Xinhua news agency reported.

Reporting by Michael Wei; Editing by Alan Wheatley

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