June 12, 2012

China probes on milk powder price increases

China's government has begun a thorough investigation on the cost of daily necessities, with Abbott's powdered milk the first product spotted as having unfairly raised prices, in a move to contain unreasonable price hikes in local markets.

Vice Premier Jian Yi-huah, convener of the Executive Yuan's ad hoc team on price stabilisation, a joint effort of the Ministry of Economic Affairs (MOEA), Fair Trade Commission (FTC), Consumer Protection Commission, and Department of Health (DOH), said yesterday that its current investigations are focused on businesses which have referred to possible price hikes due to higher electricity rates.

The ad hoc team seeks to "demonstrate to the public the government's resolution in monitoring the prices of daily necessities" by beginning investigations focusing on products with high market shares few competitors, such as powdered milk, Chiang explained.

The difference between the import price and selling price of powdered milk is a tad too high, and since there has already been a general price rise in imported powdered milk last year, the notion of implementing another price rise in as soon as July is unacceptable, the government said.

Take the powdered milk sold by Abbott, for example: the price of a 900-gram can of powdered milk has been raised from TWD523 (US$17.49) to TWD589 (US$19.7) - a rise of over 10% - and has remained at that level since last year. That there might be an additional 6-7% rise within the upcoming month is a red flag for the Executive Yuan, Chiang said.

The Executive Yuan will announce the price fluctuations of over 10 kinds of daily necessities, including toilet paper, cooking oil, and powdered milk, in the coming days. A timeline analysis will monitor the price fluctuation of an item over an extended period of time, while an across-brand comparison will help consumers evaluate which brands offer cheaper deals.

The ad hoc group also seeks to strengthen its downstream price checking system, and would in the meantime come up with supplementary measures in case the prices of certain other daily necessities go up without sufficient reasons.

While the Executive Yuan announced a prohibition on price rises in powdered milk, wholesalers said they had not received word from businesses warning them of potential price rises.

Businesses generally contact wholesalers at least one month prior to a scheduled price rise, so it is likely that they are just testing the market's reaction by leaking the possibility of a price rise. The actual price rise may not happen until after August or September, according to wholesalers.