China fines Fonterra, others in milk price-fixing probe

JOE MCDONALD

BEIJING — The Associated Press

Published Wednesday, Aug. 07 2013, 5:53 AM EDT

Last updated Wednesday, Aug. 07 2013, 6:03 AM EDT

China announced Wednesday it has fined six milk suppliers, including Mead Johnson and New Zealand’s Fonterra, a total of $108-million for price-fixing after an investigation that shook the country’s fast-growing dairy market.

The announcement came as China reels from a separate recall of milk supplies from Fonterra this week due to possible contamination.

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The investigation reflected intensifying scrutiny of business under China’s 5-year-old anti-monopoly law. Most targets so far have been foreign-owned. It was carried out against the backdrop of Chinese probes of possible bribery and other misconduct by global suppliers of pharmaceuticals and other products.

Anti-monopoly enforcement “is getting more and more forceful,” said Wang Xiang, a lawyer for the firm Orrick, Herrington & Sutcliffe.

The Cabinet’s National Development and Reform Commission said it imposed fines totalling 668.7 million yuan ($108-million U.S.) on the local units of Mead Johnson Nutrition Co., based in Glenview, Illinois; Hong Kong-based Biostime International Holdings Ltd.; Dumex, a unit of France’s Danone SA; Abbott Laboratories, in Abbott Park, Illinois; Fonterra Co-operative Group and Dutch-based FrieslandCampina NV.

The companies admitted they violated the anti-monopoly law by setting minimum prices distributors were required to charge, which raised costs for consumers, the NDRC said in a statement. Regulators did not allege direct collusion, known as horizontal price-fixing, among them.

Setting minimum prices is a common practice in some markets, where companies want to maintain an image as a premium brand. But lawyers say Chinese regulators appear to see most such requirements for distributors as illegal.

Last week, health care giant Johnson & Johnson was ordered by a Shanghai court to pay compensation to a former distributor in a lawsuit brought under the anti-monopoly law.

Beijing is especially concerned about consumer prices at a time when communist leaders face pressure to contain surging living costs.

Three suppliers were found to have violated the law but were spared fines, the NDRC statement said. They were China’s Beingmate Group Ltd.; Wyeth Nutrition, a unit of Switzerland’s Nestle SA, and Japan’s Meiji Dairies Corp.

Other industries also could face tougher scrutiny, especially those in which foreign enterprises have advanced technology that might dominate a market, said Wang.

“Industries like new drugs and medical equipment, especially top companies that have the potential to be monopolies, should pay more attention to this,” he said.

Milk and its quality and price are sensitive in China after six babies died and thousands were sickened in 2008 due to formula tainted with the chemical melamine. That prompted many parents to switch to buying more expensive imported milk.

Thursday’s announcement referred to suppliers of milk powder while earlier reports by state media said investigators specifically targeted sellers of powdered infant formula.

Milk suppliers including Nestle and Dutch-based FrieslandCampina announced price cuts of 5 to 12 per cent after the investigation was launched.

Mead Johnson was fined 203.8 million yuan ($33-million), Biostime 162.9 million yuan ($26.3-million) and Dumex 172 million yuan ($27.7-million), according to the NDRC statement. FrieslandCampina was fined 48.2 million yuan ($7.8-million), Abbott 77.3 million yuan ($12.5-million) and Fonterra 4.5 million yuan ($720,000).

Some fines were based on companies’ annual sales and ranged from 3 to 6 per cent of revenue, the agency said.

There have been few court rulings so far on the 2008 anti-monopoly law. That has fed uncertainty about how it will apply to global companies that are eager to expand in the world’s second-largest economy.

Chinese regulators have cited the law in ordering changes to acquisitions or business practices. In 2009, they blocked Coca-Cola Co. from buying a Chinese fruit juice producer.

Business groups welcomed the law as a step toward clarifying operating conditions in China. Since then, they have said it is enforced more actively against foreign companies than against their Chinese rivals.

Last week, a Shanghai court ordered U.S.-based health care giant Johnson & Johnson to pay damages to a distributor in a lawsuit filed under the anti-monopoly law. The court said J&J improperly set minimum prices, depriving the local distributor of possible sales.

Meanwhile, China has ordered a recall of Fonterra infant formula after the dairy company announced Saturday that hundreds of tons of infant formula, sports drinks and other products might be tainted with bacteria that could cause botulism.

Also last month, police detained four employees of GlaxoSmithKline on charges they bribed doctors to prescribe the British pharmaceutical giant’s drugs.

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Baby Infant formula is in short supply in Britain, Netherlands, Hong Kong and China

Associated Press researcher Yu Bing contributed to this report from Beijing.

BERLIN (AP) — Yong-Hee Kim still can't believe that in a prosperous country like Germany, powdered baby formula would ever be rationed and that she would have to scour shops in the German capital to find the right brand for her 13-month-old son.

But that's what has happened since major retailers in Germany this year began limiting sales of leading brands of baby formula. Parents in Britain, the Netherlands and Hong Kong have faced similar restrictions.

The reason for the sudden shortage is a quirk of globalization — one that illustrates the complexities of supply and demand in a wired world.

Parents thousands of miles away in China have been using the Internet or tapping friends and relatives in Europe to buy up stocks of high quality European-produced formula — often paying much higher prices than they would here.

Chinese demand for foreign brands soared after drought in Australia and New Zealand cut supplies from China's major sources of imported baby formula. Chinese parents who have enough money have largely shunned local brands since a contaminated milk scandal in 2008 left six babies dead and another 300,000 sick.

With Chinese consumers turning to sources abroad, major retail outlets in Germany, Britain, the Netherlands and Hong Kong have limited sales of several leading brands of baby formula. In Europe, parents have been stockpiling the milk powder at home, further intensifying the shortage.

"They don't sell more than three boxes of formula per store anymore. So my husband and I are checking out all those stores, running from A to B, to make sure we can get the right baby milk powder for our son," Kim said as she watched her son at a playground in Berlin's leafy Prenzlauer Berg neighborhood.

"We even end up paying two, three or four euros more for a box," she sighed. "It's really annoying."

In Germany, the run on powdered milk started in February, according to dm, a major chain of drug stores, which are the main retail outlets for baby food in this country.

Sales clerks at stores in major tourist venues, including international airports and Berlin's Friedrichstrasse train station, noticed Chinese travelers piling shopping carts to the brim with boxes of one popular brand, Aptamil.

"We noticed that due to extremely high demand we weren't able to provide enough Aptamil baby food," said Christoph Werner, a spokesman for dm. "So we decided to limit the amount of Aptamil products temporarily."

Hong Kong also announced curbs in February on baby formula purchases by customers from mainland China. The multinational food company Danone in Britain said it had significantly increased the production of Aptamil, after leading supermarket chains Tesco and Sainsbury's said they had to limit formula sales. Stores elsewhere in Europe also limited sales of two other popular brands — Milumil and Cow & Gate.

"We understand that the increased demand is a result of unofficial exports to China to satisfy the needs of Chinese parents who want international brands for their babies," Danone said in a statement.

In China, however, the perspective is different.

Ma Zhigao, who lives in the southern Chinese city of Shenzhen, turned to his brother-in-law in Germany for supplies of Aptamil to feed his 2-year-old son. He soon realized a lot of his fellow Chinese were anxious to get hold of foreign formula.

He set up a side business buying formula abroad, supplying his family and selling the surplus online. The sales restrictions in Germany are cutting into his business.

"Following the ban from Germany, my business suffered a sudden decline, and after our own consumption, I have almost nothing left," said Ma, who works in construction. "I even have to calculate carefully to save enough for my child. I'm seriously considering closing my online business now."

Even regular Chinese retailers are feeling the pinch.

The Shenzhen Jiulong Trading Company used to sell dozens of boxes of imported formula each day but is now worried about shrinking supplies.

"We sell Aptamil formula to Chinese parents who don't have much trust in domestic brands," said Huang Juan, a sales manager. "We used to import from New Zealand, but due to the sales ban from the New Zealand government, we have been suffering shortages."

Between eager Chinese buyers and worried Germans hoarding supplies, demand for Aptamil in this country went up by more than four percent in the past year and would have probably gone up higher if outlets hadn't restricted sales.

"We've already reacted and increased our production," said Heike Mueller, a spokesman for Milupa, which is owned by Danone and produces Milumil.

Mueller told The Associated Press that the company has hired more workers at its plant in Fulda in southwestern Germany and expanded its 24-hour telephone hotline, which parents can call if they can't find enough formula in their local stores.

In some cases, he said, the company has sent families extra boxes of formula to make sure the babies can get enough.

"We have also received requests from so-called companies in China asking if they could import our products directly, but we've rejected all those demands strictly," Mueller said. "Our priority is to deliver enough products to mothers and fathers in Germany."

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China Trade Mission 2013 from Canada

Canadian Dairy Manufacturing Inc. signs new China sales contracts worth $680 Million CDN

 

The China Trade Mission 2013 objectives of securing new business for Canadian companies located in Ontario proved to be extraordinary for Canadian Dairy Manufacturing Inc. (CDM).   CDM is constructing a $62 Million new state-of-the-art baby infant formula plant in Scarborough that will employ 350 new jobs with an anticipated $500 Million CDN in annual sales.  Plant commissioning is planned for the fourth quarter of this year and securing sales is a top priority.

This mission provided numerous benefits for Canadian Dairy Manufacturing Inc. and Ontario:

1.           CDM signed $680 Million CAD for sales over the next 5 years  covering 7 provinces in China

2.           CDM met with numerous China-based distributers during meetings in Shanghai,           Nanjing and  Chengdu who cover retailers and hospitals in the other provinces in China - giving CDM a "national" coverage. 

3.           Increase Canadian dairy exports from $227.2 to $810 Million, a $200 million dairy trade               surplus

4.           Turn Ontario’s Agri-food $382.26 deficit with Asia to a $200 million surplus

5.           Increase Dairy profits by $31 Million

6.           An annual economic benefit in Ontario of $334 Million