August 19, 2013

China seeks to consolidate infant formula firms

The proposal is part of the government's drive to slash the number of domestic infant formula manufacturers over the next five years to 50 from about 200 now, a Chinese journal said.

By 2018, China expects the top 10 local companies to account for 80% of the domestic market, with the largest three-to-five firms targeting annual sales of over RMB5 billion (US$818.00 million), the report said.

The newspaper said Feihe International and Wondersun Dairy were also likely to gain from the consolidation plan, but gave no further details.

Analysts said the consolidation drive is part of a broader plan to boost consumption of local product and allay fears about food safety following a 2008 scandal, when formula tainted with melamine killed at least six infants and made thousands ill.

Last week, the country's price regulator also handed down record fines to foreign milk powder makers, including Mead Johnson, Danone and Fonterra, for anti-trust behaviour.

"The government sees a lot of room for consolidation and the real motive here is to improve the overall standards of infant milk formula products," said Sandy Chen, a Shanghai-based senior analyst for food and agribusiness at Rabobank.

Consumers in China are highly sensitive to food safety after persistent problems such as chemical-laced pork. China's infant formula market is worth around US$12.4 billion in 2012, and is set to double in size by 2017, according to data from Euromonitor.

In 2012, the 10 biggest Chinese infant formula firms by market share were Zhejiang Beingmate, Yili, Biostime International Holdings, Yashili, Daqing Dairy, Feihe International, Wissun Group, Wondersun Dairy, Synutra International and Ausnutria Dairy, the data showed.