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.

MORE RELATED TO THIS STORY

• Fonterra under fire over response to contamination scare
• New Zealand dollar skids after contaminated dairy scare
• AGRICULTURE China beefs up its dairy efforts

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.

Check out my latest e-book entitled: "Social Media Marketing in Agri-Foods: Endless Profit and Painless Gain"

The book is available on Amazon and Kindle for $4.99 USD. Visit amazon/Kindle to order now:
http://www.amazon.ca/Social-Media-Marketing-Agri-Foods-ebook/dp/B00C42OB3E/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1364756966&sr=1-1

Thanks for taking the time!

DANONE INVESTS €325M TO SPEED DEVELOPMENT OF DAIRY SECTOR IN CHINA

Published May 24, 2013 in Food Product Design

PARIS—Danone announced it will invest approximately €325 million in partnerships to strengthen and accelerated the development of fresh dairy products in China.

Danone signed a joint venture agreement with COFCO, the state-owned largest food company in China. COFCO will sell 148,014,022 shares in China Mengniu Dairy Company to the joint venture—COFCO and Danone will own 51% and 49% respectively in the newly formed company. Danone will become a strategic shareholder in Mengniu, owning an indirect interest of approximately 4% at the initial stage, with the goal to increase the interest in Mengniu based on market conditions in the future.

Danone and Mengniu also signed a framework agreement to establish a joint venture for the production and sales of chilled yogurt products in China, combining their respective assets in this category for a total 2012 pro forma net sales of about €500 million, with an estimate market share around 21% and 13 factories across China.

Danone will own 20% and Mengniu 80% of the new joint venture in China. The partnership will achieve synergies by introducing Danone’s expertise in quality and product innovation, while leveraging Mengniu’s leadership and distribution capability in China’s yogurt category.

Danone will invest approximately €325 million as a result of the two projects. The cooperation will help Mengniu to leverage Danone’s leading product innovation and management capability in the Fresh Dairy category. Danone’s BIO (Activia) brand will put the new fresh dairy business in a solid position to build its strong leadership in the active health sector.

“Joining the strengths of Danone, COFCO and Mengniu will create the winning combination to unlock the potential of the fresh dairy products category in China," said Franck Riboud, Danone Chairman and CEO. “Backed by COFCO’s extensive expertise in the Chinese food industry and by Mengniu’s nationwide leading platform in the dairy sector, our brands will benefit from significantly wider reach to the largest number of Chinese consumers."

Mengniu recently signed a international partnership with Arla Foods; however, this partnership is unaffected by the agreement. COFCO’s and Mengniu’s strategic partnership with Arla Foods is unaffected by the agreement.

“Arla welcomes Danone as Mengniu’s partner in the locally produced chilled yogurt category. Together with our ongoing initiatives in the Arla/Mengniu milk technology center in Beijing, we are confident that Danone’s engagement in Mengniu will increase consumers’ trust in locally produced dairy products - for the benefit of all players in the Chinese dairy market," said Finn S. Hansen, executive vice president of Arla Foods and member of Mengniu’s board of directors.

Earlier this month, Danone signed an agreement to acquire more than 90% equity interest in New York-based Happy Family, the fourth largest maker of baby food in the United States. The strategic alliance will raise the bar for children’s nutrition in the United States by combining both companies shared commitment to social responsibility and innovation.

Sources:

• Danone: COFCO, Mengniu and Danone Join Forces to Accelerate the Development of Fresh Dairy Products in China

Check out my latest e-book entitled: "Social Media Marketing in Agri-Foods: Endless Profit and Painless Gain".  

The book is available on Amazon and Kindle for $4.99 USD. Visit amazon/Kindle to order now:
http://www.amazon.ca/Social-Media-Marketing-Agri-Foods-ebook/dp/B00C42OB3E/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1364756966&sr=1-1

Written by Bruce MacDonald, a 30 year veteran of the Agri-food industry, in "Social Media Marketing in Agri-Foods: Endless Profit and Painless Gain", Bruce applies his background and expertise in Agri-foods and social media to the latest trends, tools and methodologies needed to craft a successful on-line campaign. While the book focuses on the Agri-food market specifically, I believe that many of the points Bruce makes are equally applicable to most other industries.

China's $10 Trillion Import Machine Says Goodbye To Cheap Energy, Food

China‘s newly minted Premier Li Keqiang said Monday that his country is likely to import as much as $10 trillion worth of commodities and services in the next five years to boost domestic consumption,China Daily reported Tuesday.

Li renewed the nation’s pledge to maintain its open policy, and promised a further opening up of services and industries related to energy-saving and environmental protection.

That mammoth $10 trillion number comes as no surprise to Boston Consulting Group senior partner Michael Silverstein.  He co-authored the book that spelled it out last year titled — no kidding — “The $10 Trillion Prize: Captivating the Newly Affluent in China and India“.  Only the Boston Consulting Group team that worked on the book forecast $10 trillion by 2020.  Li’s moved it up to 2018.

“We are in the third or fourth inning of the China consumer growth story,” Silverstein said in an interview with Forbes.  ”China consumer demand is going to make water scarce, wheat prices stable to high and keep luxury brands extremely happy.”

In his closing remarks this weekend at the China Development Forum in Beijing, Li said, “China will expand its opening-up policy. The nation needs to promote domestic consumption through continuing to open up its markets.”

China consumers are a big part of China’s future.  As part of the 12th Five-Year Plan (2011-15), the government has vowed to expand domestic consumption to help the nation move away from its export-driven, cheap labor model.

China is facing two unprecedented transformations, Li said. One is for a nation of 1.3 billion people to complete its modernization process without destroying the environment or creating gaping income gaps. China is currently losing both of those fights.  That leads to the second challenge, to address and implement policies that will avoid these problems in the future, especially concerning environmental protection.  China is one of the most polluted countries on Earth.

On the way to maintaining sustainable economic growth, China is facing “huge opportunities and complicated and severe challenges,” and “we have to rely on domestic consumption in the long-term,” with “urbanization” being a major contributor to that growth, Li said.

The Boston Consulting Group forecasts that between now and 2020, China consumers will spend $41.5 trillion with annual expenditures rising from $2 trillion in 2010 to $6.2 trillion in 2020, an increase of 203%.  Chinese children born today will continue to live in a country on the path of rapid economic progress and growth.  They will consume 38 times more material goods — from food to shelter — than their grandparents before them, Silverstein estimated.