China Investigates Danone, Mead Johnson on Milk Powder Pricing

July 2, 2013 Leave a comment

China Investigates Danone, Mead Johnson on Milk Powder Pricing

China is investigating foreign milk powder sellers including Danone (BN) and Mead Johnson Nutrition Co. (MJN) on suspected anti-monopoly violations, the official People’s Daily reported today, citing a government agency.

The National Development and Reform Commission, the country’s top economic planning agency, started a probe into the pricing of infant formula sold by Danone, Mead Johnson, Nestle SA (NESN)’s Wyeth brand, Abbott Laboratories (ABT), Dutch producer Royal FrieslandCampina NV, as well as local firm Biostime International Holdings Ltd. (1112), the newspaper reported on its front page today.The NDRC has evidence to show the companies had sold products at higher pricing in China, with prices increasing about 30 percent since 2008, according to today’s report, which cited the agency’s price monitoring and anti-monopoly unit. Safety scares such as a melamine-tainted milk powder scandal in 2008 which killed at least six infants have increased Chinese consumers’ distrust of local milk and driven up their purchases of foreign brands at home and overseas.

“Prices of milk powder, particularly from foreign brands, have gone up because of the far greater trust Chinese consumers have in the brands,” said James Roy, an analyst at China Market Research Group. “Chinese consumers see the higher price point partly as an assurance of the product safety.”

Spokespeople for Mead Johnson, Danone, Nestle, Biostime and Abbott couldn’t be reached immediately for comment. Jan-Willem ter Avest, a spokesman from Royal FrieslandCampina, said he has no information on the probe and will look into the matter.

Industry Consolidation

The investigation follows a bid by China to consolidate its milk formula industry and create strong domestic brands in the sector. China targets creating 10 large companies in the industry within two years, each with annual revenue of more than 2 billion yuan ($326 million), China National Radio reported last month, citing Gao Fu, an official at the Ministry of Industry and Information.

China Mengniu Dairy (2319) Co., the country’s largest dairy producer, led gains by Chinese dairy companies after the report from the People’s Daily, which is published by the Chinese Communist Party.

Mengniu shares surged as much as 5.2 percent to HK$29.20 in Hong Kong trading today, headed for the biggest gain since June 19. Inner Mongolia Yili Industrial Group Co. rose as much as 1.8 percent in Shanghai trading.

Consolidating Industry

Biostime’s Hong Kong-listed shares declined the most in almost two years last Friday after the Chinese baby-care products provider said one of its units was under investigation for alleged anti-monopoly law violations.

Its shares rose as much as 2.2 percent to HK$44.45 in Hong Kong after the Guangzhou-based company said today it would subscribe for a 20 percent stake in French agricultural co-operative Isigny Sainte Mere.

Mengniu Dairy offered HK$12.5 billion ($1.6 billion) to buy a local infant formula maker Yashili International Holdings Ltd. (1230) on June 18. The acquisition was part of a government-led push for consolidation in the industry, Mengniu Chief Executive Officer Sun Yiping has said. COFCO, the state-backed agricultural and food industry supplier, owns 19 percent of Mengniu, according to data compiled by Bloomberg.

Mead Johnson had a 14 percent share in China’s 77.9 billion yuan milk formula market last year, according to industry researcher Euromonitor International. Hangzhou Beingmate Group Co. was second with a 10 percent share followed by Danone’s 9.2 percent and 7.8 percent by Yili.

To contact the reporter on this story: Liza Lin in Shanghai at llin15@bloomberg.net

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