July 11, 2013

 

China widens investigation on price-fixing for food, dairy products

 

 

China is widening its investigations into the food and dairy industry, extending probes into Switzerland-based food processing and packaging company Tetra Pak Group for possible abuse of market dominance

 

Chinese agencies are also investigating 23 cases of possible monopoly violations by overseas companies. The State Administration for Industry & Commerce has organised more than 20 of its regional agencies to investigate the allegations, Zhang Mao, head of the market watchdog, said at a forum on Monday (Jul 8).

 

The investigation into Tetra Pak is the latest sign of increased scrutiny into the operations of overseas companies in the world's second-largest economy. Nestle SA and Danone's infant-nutrition units are cutting some prices after the newspapers reported July 2 that the government started probing possible price-fixing by global producers of infant formula. Drug makers including GlaxoSmithKline Plc are being probed separately.

 

Tetra Pak was asked by the Chinese authorities to provide information about its business in China a few weeks ago, said spokesman Christopher Huntley. "We have no information about a formal investigation." The information requested was "very broad" and the company is cooperating, he said, declining to disclose further details.

 

Tetra Pak, which entered the Chinese market in 1972, processes food including dairy and milk products as well as ice cream, according to its website. It has a research and development centre in Shanghai and factories in cities including Beijing, Foshan, Kunshan and Hohhot.

 

Chinese Premier Li Keqiang, who took office in March, has pledged to root out consumer abuses. Apple Inc. and Yum! Brands Inc. are among foreign companies that have had to apologise this year to consumers in China after authorities began investigating their operations.

 

"You always got to contend with the fact that anything in China is always political," said Matthew Crabbe, Asia director of research at industry analyst Mintel Group Ltd. Foreign companies "have to play the political game" and protect their brand image as China is a "very important market for companies. They are going to do what they have to for market share in China."

 

China's National Development and Reform Commission (NDRC), the top planning agency, started an investigation into the pricing of infant formula sold by Nestle's Wyeth and other foreign companies including Mead Johnson Nutrition Co., Abbott Laboratories and Dutch producer Royal FrieslandCampina NV.

 

Domestic company Biostime International Holdings Ltd. is also being investigated, it said. The NDRC has evidence to show their pricing increased about 30% since 2008, the same year milk powder contaminated with the chemical melamine killed at least six infants, fanning distrust among Chinese consumers of local milk and driving them toward foreign brands.

 

Scandals including contaminated milk powder and rat meat sold as mutton have fuelled demands for the government to crack down on safety violations. Fonterra Cooperative Group Ltd., the world's largest dairy exporter, was contacted on a "broad ranging investigation of consumer dairy products in China," and it's cooperating with the authorities, the Auckland-based company has said.

 

A day after the newspaper's report, Wyeth, owned by Vevey, Switzerland-based Nestle, said it would lower the prices of some baby-formula products by as much as 20%. It also cancelled a plan to increase the prices of its S-26 range of milk powder and said the price reductions will save consumers an estimated RMB450 million (US$73 million) in the next 12 months.

 

Danone said its Dumex unit is also preparing a price cut and will disclose details later. Today, FrieslandCampina said it will cut prices of its Frisco dairy products in China by 5% as of July 8. The Amersfoort, Netherlands-based company is "fully cooperating" with the NDRC, it said on its website.

 

Biostime rose 4.7% in Hong Kong trading, paring its decline since June 27, when it said it was under investigation for price fixing, to about 31%. The commission is also examining the costs and prices of drug makers including GlaxoSmithKline, Merck & Co., Novartis AG and Baxter International Inc. to improve the pricing system for medicines, it said on July 2.