Formula milk frets
While Chinese parents remain hesitant to purchase domestic powder brands for their children, companies work hard to regain consumer confidence
Although Chinese infant formula milk powder brands have witnessed a steady recovery in sales in recent years due to the food authority ramping up efforts to regulate the production and sales of the product, domestic brands’ growth rates are still lagging behind those of their foreign counterparts. Some Chinese consumers still do not trust the quality of domestic brands, and their comparatively steeper prices due to high logistics costs are another disadvantage. As such, experts have advised that Chinese dairy enterprises must further optimize their milk sources and enhance their brand awareness in order to woo consumers.
Like many other Chinese parents, 30-something Peng Siyuan has not completely walked away from the gloom of the nationwide milk scandal of 2008 and still has concerns about the standards of Chinese-branded food products she feeds her child.
“I considered buying domestic brand milk powder when my son was two years old, but my family persuaded me to drop the idea because they were worried about the quality,” Peng told the Global Times on Tuesday.
Instead, she finally chose the milk powder produced by New Zealand dairy company A2 Milk.
However, Peng said she still has some confidence in domestic brands as the Chinese government is increasingly tightening regulations on the domestic infant milk powder industry.
The China Food and Drug Administration (CFDA) last year rolled out the Administrative Measures for the Registration of the Formulas of Infant Formula Milk Powder, which officially introduced a registration process into the infant milk powder industry and raised the entry barrier.
To date, about 400 formulas have passed the process and gained approval from the CFDA, according to data on the CFDA’s official website.
Foreign brands seizing market
As a result of the government measures and increasing market demands enabled by the relaxed family planning policies, Chinese infant milk powder brands have been witnessing a steady sales recovery in recent years.
The total sales value of domestic infant milk powder surged from 48.5 billion yuan ($7.38 billion) in 2012 to 81.5 billion yuan in 2015 and to 96.9 billion yuan in 2016, Beijing-based Economic Information Daily (EID) reported on Monday.
However, although it is estimated that the figure will surpass 100 billion yuan this year, the growth rate of domestic brands each year appears to be still slightly slower in comparison to that of foreign brands.
According to the EID report, foreign companies now account for half of China’s infant formula milk powder market, with their annual sales growth rate maintaining above 20 percent.
The increasing number of newborns per year has also helped to boost Chinese market demand for infant formula milk powder as well as annual imports of the product.
China imported 221,000 tons of infant formula milk powder from 18 countries in 2016, up 25.6 percent year-on-year, with the EU, New Zealand and South Korea ranking as the top three suppliers in terms of trade volume, according to a report released by the General Administration of Quality Supervision, Inspection and Quarantine of China in July.
The dramatic increase in the volume of China’s imported infant milk powder is a result of the country’s rapid development of crossborder e-commerce and logistics, which make it more convenient for consumers to purchase the product online.
Previously hard-to-reach foreign milk powder brands can now touch consumers in almost every corner of urban China, even those in small and remote Chinese cities.
Experts said that another important factor that has contributed to China’s large imports of foreign infant formula milk powder is that Chinese parents have been hesitant to put the health of their children in the hands of domestic companies since 2008, when a nationwide dairy scandal erupted.
Poisoned powder aftermath
A Beijing-based white-collar worker surnamed Zhao, also the mother of a one-year-old girl, told the Global Times on Tuesday that she “dare not” buy domestic infant milk powder as she has not managed to come to terms with the shocking milk scandal of 2008.
Back in 2008, six babies died from kidney stones and some 300,000 others suffered from kidney damage due to being fed melamine-contaminated infant formula along with other food materials produced by Sanlu Group, a leading dairy company based in North China’s Hebei Province at the time.
“I still have some concerns over the food safety of domestic milk powder, and I believe that 80 percent of mothers living in first-tier cities are prone to buying foreign brands, which we believe can ensure a safe milk source,” Zhao said.
Zhao also said she would like to choose famous foreign brands from Germany, the Netherlands or Australia when her baby is ready to be weaned.
After the milk scandal occurred, the market shares of domestic brands were obviously evaded, not only in first- and second-tier cities, but also in third- and fourth-tier cities, the EID report quoted Yuan Yunsheng, secretary-general of Hebei Dairy Association, as saying.
China’s dairy industry has been finding it hard to heal from the reputation damage caused by the incident, especially as mountains of negative press circulated in the aftermath, experts noted.
The public tend to wear “tinted glasses”, even though some domestic milk products are better in quality and price than some foreign ones, they said.
Many industry insiders think that, due to the government ramping up regulation of the production and sales of the domestic milk powder industry, such products made in China have now reached the best level in history and met international standards.
About 98.7 percent of Chinese infant formulas checked by authorities last year were above ordinary food standards, according to a dairy quality report jointly released by the Dairy Association of China and the Ministry of Agriculture in July.
However, in addition to consumer concerns, China’s infant formula milk powder companies also do not hold many pricing advantages due to high logistics costs caused by non-flattening sales channels, which involve several dealership layers before reaching end users, the EID reported.
“A can of foreign milk powder is usually sold at 100 yuan in overseas markets, while a domestically made one costs around 200 yuan,” said Cao Mingshi, deputy secretary-general of the Shanghai Dairy Association, detailing the reason why many Chinese families tend to buy foreign brands over domestic ones through online shopping.
Transformation needed
Some domestic brands have been enhancing their brand awareness to restore consumers’ faith through various kinds of offline activities.
Peng, the abovementioned young mother, told the Global Times that she took her son to observe the milk and milk powder producing process at Beijing-based agriculture conglomerate Sanyuan Group this July.
“The whole process is full of high technology, and it’s breathtaking for me. The tour strengthened our confidence and sense of pride in China’s dairy industry,” she said.
Gu Xiaoming, a professor at Fudan University, was quoted by the EID as saying that joint efforts by the government agencies, enterprises, associations and media are needed to help domestic brands regain good reputations.
While putting more focus on reputation recovery, China’s dairy companies should also optimize their milk sources in terms of safety quality and nutrition, experts suggest.
But some domestic brands have failed to adhere to the highest of standards when choosing milk sources, according to media reports. “Milk sources should be classified into different types… and enterprises should use the highest quality sources to make milk powder,” Cao said.