September 20, 2011

China is likely to see foreign brands surpassing domestic ones in its milk powder market for the first time this year, after domestic and foreign producers split the market 50-50 last year, industry experts estimated.

"Based on current momentum, the foreign brands will take at least 60% of the baby formula market," said Wang Dingmian, chairman of the Guangzhou Dairy Association.

As much as 600,000 tonnes of milk powder could be imported this year, he said.

The rise in imports is harming local businesses. Milk powder producers in many parts of the country, including Heilongjiang province and the Xinjiang Uygur and Ningxia Hui autonomous regions, have reported having an excess of stock and price wars with foreign brands.

"Sluggish sales and overstock have continued since 2008, which has weakened not only local enterprises but also big domestic brands," said Zhao Shuming, secretary-general of the Ningxia Dairy Industry Association.

Zhao said a tonne of imported milk powder generally costs RMB3,000 (US$470) more than domestic milk powder. "So the Chinese manufacturers have to keep their prices low to compete with foreign brands," he said.

Moreover, imported milk powder has been noticeably attracting consumers in rural areas in addition to its monopoly in the urban market, especially regarding baby formula products.

Consumers have been hurt by a string of dairy scandals, from melamine-tainted baby formula incidents to 'leather milk' (milk containing a substance extracted from leather scraps).

Dairy industry experts said it will take at least three years for domestic brands to reverse the rise in import volume and win back their customers.

Statistics released by the General Administration of Customs show that milk powder imports to China set a new record each year since 2008. The number surged to 414,000 tonnes in 2010, tripling that of 2008. In the first three months of this year, 166,000 tonnes were imported.