Baby formula

China threatens heavier fines after baby formula probe

Foreign suppliers of baby formula who ignore monopoly law to face penalties, regulator says

PUBLISHED : Friday, 09 August, 2013, 12:00am
UPDATED : Friday, 09 August, 2013, 8:50am

Foreign suppliers of infant milk formula who knowingly breach the anti-monopoly law can expect tough penalties, China's pricing regulator said a day after six producers were given record fines for manipulating prices.

Xu Kunlin, head of the Price Supervision and Anti-Monopoly Bureau of the National Development and Reform Commission, said the companies faced more serious fines if they gave the impression of complying with the law's provisions while in fact opposing them, People's Daily reported.

On Wednesday, the NDRC announced fines totalling 668 million yuan (HK$840 million) had been issued to the six dairy companies - Hong Kong-listed Biostime, Mead Johnson and Abbott of the US, FrieslandCampina of the Netherlands, France's Dumex and New Zealand's Fonterra. They were the biggest fines levied for violations of the anti-monopoly law.

Xu said the companies knowingly broke the law and deliberately covered up evidence during the antitrust probe.

"If we find other companies that knowingly violate the [anti-monopoly] law, we will impose heavier fines," the paper cited Xu as saying.

In addition to setting minimum prices at which distributors could resell products, the producers controlled prices by threatening to cut supply to wholesalers. As a result, distribution costs for baby formula in China were three to five times higher than in other countries.

Xu's bureau, which started the probe in May after receiving a tip-off in March, sent more than 300 investigators in 26 teams to check on companies, but they allegedly met resistance when some companies deliberately hid information and provided fake documents.

The authorities said one company was found to have deleted parts of contracts with distributors to cover up the illegal actions, and some deleted e-mails were found advising employees not to negotiate prices in writing, out of fear that it would leave a paper trail of evidence of price manipulation.

Song Liang , a dairy industry analyst with a distribution-research institute at the Ministry of Commerce, said that even if foreign brands become cheaper, they would still fetch higher prices than domestic brands. Foreign brands tend to be popular in first- and second-tier cities and in coastal areas, whereas domestic brands meet demand in third-tier cities and rural areas.

"The market dominance by foreign brands in the baby formula market will not change," Song said, noting that those who could afford the higher prices would pay them, while other parents would buy domestic brands.