October 25, 2013

Meiji to suspend sale of milk powder in China

Japanese dairy giant Meiji, producer of the Hohoemi and Step baby milk powder brands, said on Thursday (October 24) that it will suspend the sale of milk powder in China, citing rising costs and increased competition.

The company will temporarily stop the sale of three baby formula products and one milk formula for pregnant women in China after the current inventory has sold out.

Due to the rising costs of importing milk from Australia and increasingly fierce competition, the company has found it difficult to make a stable profit in the market, according to the Shanghai branch of Meiji.

Since 2010, the company started selling milk powder made in Australia to circumvent China's ban on milk imports from Japan, due to a foot-and-mouth disease outbreak in southwestern Miyazaki.

When Meiji entered the mainland market in 2007, it was soon among the top 10 milk powder companies alongside American and European brands like Mead Johnson. However, following the food-and-mouth disease issue, samples of its products were found to contain traces of radioactive caesium as a result of radiation leaks from the Fukushima nuclear plant in December 2011. The incident dented Japan's reputation for food safety with consumers worldwide fearing radioactive contamination of its exports.

Besides, the business environment in China is getting more difficult for foreign players as the Chinese government is backing home-grown dairy brands while tightening the management of foreign producers, according to Song Liang, a dairy industry analyst.

In August, the National Development and Reform Commission slapped record fines of RMB 668 million (US$109.83 million) on six foreign milk formula producers for violating anti-monopoly laws. Afterwards, China issued a set of new rules on imported milk powder last month, insisting importers limit the size of packaging, adding to their costs.

In the long term, the Ministry of Industry and Information Technology (MIIT) has submitted the plan for merging and reorganising domestic infant formula milk powder producers to the State Council, according to the MIIT's website.

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 JPY3 billion (US$30.83 million) to build its first factory in China, in Jiangsu province - expected to be producing soon. Meiji may consider resuming its milk powder business in China when the market environment improves.