August 7, 2013

China's National Development and Reform Commission (NDRC) has slapped fines on foreign baby formula makers Fonterra Co-operative Group, Mead Johnson Nutrition Co and Hong Kong-listed Biostime International Holdings, after its review of price fixing and anti-competitive practices.

Fonterra has been fined approximately NZD 900,000 (US$710, 212); Mead Johnson Nutrition Co, maker of Enfamil formula, will pay about U$33 million in penalty; and Hong Kong-listed Biostime International Holdings, which imports most of its products, has been fined RMB162.9 million (US$26.6 million) for price-fixing.

China's National Development and Reform Commission, the country's top economic planning agency, began an investigation last month into the pricing of milk powder. The agency said it had evidence international baby formula companies conspired to raise prices for their products by about 30% since 2008, when fears of tainted domestic formula drove up demand for foreign brands. 

Foreign brands now account for about half of total sales of China's infant milk market, which is set to grow to $25 billion by 2017.

In the wake of the NDRC probe Mead Johnson and formula makers Nestle SA (NESN), French food group Danone SA (BN), Royal FrieslandCampina NV and Abbott Laboratories cut prices of their key products by up to 20% in China last month.

The fines are the first to be publicly announced in the wake of the antitrust review by the National Development and Reform Commission (NDRC) and coincide with separate pricing investigations into the pharmaceutical sector as well as gold trading. Analysts said the pricing investigation could result in tougher rules governing imports.

While overseas brands or imported dairy products are perceived to be of higher quality, this image was dealt a blow in recent days when New Zealand's Fonterra, the world's biggest dairy exporter, apologised for a milk powder contamination scare. That has led to product recalls in China, Hong Kong and elsewhere in Asia this week.