HK’s US$160m milk powder market to face severe clamp down

HK’s US$160m milk powder market to face severe clamp down

Staff Reporter

2013-02-27

Hong Kong will no longer be a safe haven for the baby formula buying craze of mainland Chinese customers. Starting as early as March 1, Hong Kong will limit the amount of baby formula taken from the island city to two tins per person or 1.8kg, following a string of measures proposed in early February to ease milk powder shortages, Guangzhou-based 21st Century Business Herald reports.

Any violator can be fined for a maximum HK$500,000 (US$64,000) and up to two years in prison, the report said.

There has been a severe shortage of some popular brands of baby formula in the Hong Kong retail market recently due to surging demand from mainland parents disillusioned by scandals over the quality of domestically produced powder.

Dairy expert Wang Dingmian estimated that the milk powder trade from Hong Kong totals more than 1 billion yuan (US$160 million) a year, the report said.

After the announcement, prices of Hong Kong’s baby formula on Taobao — one of China’s leading e-commerce websites — increased by 10 to 20 yuan (US$1.60 – $3.20) a can, according to a Taobao agent.

As of March 1, 95% of milk powder purchasing agents will withdraw from the Hong Kong market, she said.

The Hong Kong government also recently forbade persons aged below 16 to take baby formula out of the city, the report said.

Various sources showed that prices of Hong Kong’s baby formula increased around 10% before the purchasing restrictions, because this will increase the operation costs of purchasing agents, the report said.

The milk powder raid on Hong Kong began when formula tainted with melanine swept the country in 2008, making people paranoid about the label Made in China on their food. They have since sought out imported goods or left the country entirely to make their purchases.

Many Chinese people cross the Hong Kong border to purchase daily necessities in Hong Kong, buying in bulk, especially baby formula. They then smuggle their goods back into the mainland China.

As most of these smugglers, each taking more than 30 cans of baby formula per day, easily avoided paying taxes, their selling prices back to the mainland are about 30 to 50 yuan (US$4.80 – $8.00) cheaper than the legally imported foreign products sold in China, the report said.

Since last year, several countries such as the United States, New Zealand, Australia and Germany have launched purchasing restrictions for baby formula aimed at Chinese consumers, the report said.

Related authorities should seriously face the problems and feel ashamed that Chinese consumers have no choice but to empty the shelves of milk powder in other countries for fear of buying in their own, Wang said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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