China fined six infant milk powder companies, including Mead Johnson Nutrition CO (NYSE:MJN) and Biostime International Holdings Limited (HKG:1112) (OTCMKTS:BTSDF), for their alleged price fixing and anti-competitive practices.
According to the state-run news agency, Xinhua, this marks the largest fine China has ever imposed for violating anti-monopoly law.
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Antitrust probe by NDRC
The Chinese government’s fine is a fallout of a four-month antitrust probe by the National Development and Reform Commission. The commission has also initiated separate investigations into 60 foreign and local pharmaceutical firms besides companies involved in gold trading. These investigations are yet to be concluded.
Biostime got harshest punishment
U.S.-based Mead Johnson was fined 203.8 million yuan ($33.29 million) translating into four percent of its 2012 revenue. Biostime International Holdings Limited (HKG:1112) (OTCMKTS:BTSDF) of Hong Kong was fined 162.9 million renminbi, translating into six percent of its last year’s revenue. Biostime got the harshest punishment among the six companies for its ‘serious violations’ of anti-monopoly law, besides failing to actively change.
Other companies who were imposed a fine include French food group Danone with 172 million yuan, while the U.S.-based Abbott Laboratories (NYSE:ABT) got fine of 77 million yuan.
The Chinese Government also imposed a fine on FrieslandCampina and Fonterra Co-operative Group Limited (NZE:FCG) with 48 million and 4 million yuan respectively.
Kazunori Takada and Michael Martina of Reuters note foreign brands account for about half of total sales in China and these brands can sell for over double the price of local formula.
Growth in sales of infant milk in China
According to data from Euromonitor, the infant milk market in China is set to grow to $25 billion by 2017 from $12.4 billion in 2012.
Considering strong growth potential, recently China Mengniu Dairy Company Limited (HKG:2319) (OTCMKTS:CIADY), which is the largest dairy producer in China, made a $1.6 billion bid for Yashili International Holdings Ltd (HKG:1230) today. This comes after a scandal revolving around baby formula that was found to be tainted. Yashili International is one of China’s leading producers of baby formula and baby food.
During the 2008 scandal, six babies died and over 300,000 children fell ill after drinking milk products tainted with melamine, a toxic chemical. Since then the Chinese milk industry has suffered severe losses. However, thanks to aggressive marketing by the formula makers, many Chinese mothers prefer to give their babies formula rather than breast milk, though breast-feeding has grown in popularity since the 2008 scandal.
Reuters note foreign brands account for about half of total sales in China and these brands can sell for over double the price of local formula.