Japanese dairy giant Meiji quits baby milk market in China

Japanese firm cites rising costs, but analysts say political and safety fears could be involved

PUBLISHED : Friday, 25 October, 2013, 3:17am
UPDATED : Friday, 25 October, 2013, 8:37am

Tough competition and rising production costs have forced Japanese diary giant Meiji to pull its milk formula business from the China market.

The company posted a statement on its website yesterday saying it would suspend sales of three baby formula products and one milk formula for pregnant women on the mainland.

"The competition in China's dairy industry is getting increasingly intense," it said. "Despite the severe business environment, Meiji continues using Australia-imported milk powder, which has increased our production costs year by year and resulted in a severe impact on our profit margin."

But some industry experts believe the reasons for the withdrawal may be more complicated, including fallout from the Fukushima nuclear disaster and tense China-Japan relations.

"The business environment is getting more difficult for foreign players as the Chinese government has intentionally backed home-grown dairy brands while tightening the management of foreign producers," said Song Liang, a dairy industry analyst.

In August, the National Development and Reform Commission slapped record fines of 668 million yuan (HK$845 million) on six foreign milk formula producers for violating anti-monopoly laws.

Last month, China issued a set of new rules on imported milk powder, insisting importers limit the size of packaging, adding to their costs.

Meiji, which entered the mainland market in 2007, used to be a major rival for American and European brands like Mead Johnson. It was well received by many mothers as "a brand more suitable for Asian babies".

Yet the company suffered a severe setback in December 2011 when samples of its products were found to contain traces of radioactive caesium as a result of radiation leaks from a meltdown at the Fukushima nuclear plant that was damaged by an earthquake and the ensuing tsunami in March of that year.

The twin disasters dented Japan's reputation for food safety, with consumers worldwide fearing radioactive contamination.

Consumers' concerns about the products' safety have dragged down Meiji sales on the mainland by as much as 90 per cent, although the company has since sourced milk in Australia.

While giving up the milk formula market on the mainland, Meiji is much more optimistic about the liquid milk, yogurt and confectionery sectors. Last year it invested 3 billion yen (HK$238 million) to build its first factory in China, in Jiangsu province - expected to be producing soon.