China milk antitrust probe may be step towards consolidation

The decision by China’s top economic planner to investigate five leading foreign infant milk companies for suspected antitrust violations may be part of a broader plan to boost consumption of the local product, analysts said on Wednesday.

Mothers turned away from Chinese milk powder in 2008 when infant formula tainted with the industrial compound melamine killed at least six babies and made thousands sick with kidney stones.

China has since made efforts to crack down on persistent food safety problems that have included chemical-laced pork and infant milk contaminated with cancer-causing agents.

Infant formula makers Nestle, Danone, Mead Johnson Nutrition and Abbott Laboratories said on Tuesday that they were being investigated by China’s National Development and Reform Commission for possible antitrust violations.

Analysts said the investigation could result in fines and tougher rules governing imports into an infant milk market set to grow to US$25 billion by 2017. The firms could face fines ranging from 1 per cent to 10 per cent of their annual sales, the state-run Xinhua news agency quoted experts as saying.

“It is part of the whole idea of a consolidation process,” said Renee Tai, a Hong Kong-based analyst at regional brokerage UOB Kay Hian. “It is pointing the same direction of supporting local producers, making it difficult for importers.”

Some Chinese infant formula companies have started forming partnerships with foreign firms to try to boost brand recognition and gain technical know-how.