China’s NDRC Improves Milk Powder Industry, Foreign Import Shirks

Milk
A2 milk is seen on a supermarket shelf in Singapore April 16, 2018. (Photo: REUTERS/Thomas White/File Photo)

China's National Development and Reform Commission (NDRC), along with another six other departments of the central government, issued a joint action plan Tuesday to expand the quality and self-sufficiency of the baby formula industry of the country in response to the decree of Chinese President Xi Jinping to "Let the country's next generation drink good milk powder".

The commission plans to boost the confidence and satisfaction of the consumers with the local baby formula. China plans to establish a comprehensive quality- and safety-tracking system that will cover at least 60% of domestic baby formula companies within three years.

The plan said that they will monitor any potential threats in the manufacturing process or supply chain, including illegally adding inedible ingredients, overusing food additives, and tampering with food labels.

China plans to impose firmer policies on imported milk powder and on online sales platforms. The commission also plans to provide assistance to the domestic dairy producers in their plans to operate overseas.

The Chinese government is seeking to raise the confidence of consumers after a deadly milk scandal in 2008 involving melamine-contaminated milk powder that killed several children.

The country's plan to boost local milk production and reduce reliance on imports might cause losses to foreign infant-formula providers. Bloomberg reported that A2 Milk Co. led the stock market losses of around $875 million among infant-formula providers in Australia and New Zealand.

Bloomberg also unveiled that China plans to exceed 60% self-sufficiency for baby formula and improve the quality of domestic brands in its $27 billion infant-formula industry.

The report also reflected, on Tuesday, that A2 Milk declined 11% to NZ$14.09 in trading in Wellington. Bellamy's Australia Ltd. is down 5.4, or A$50 million ($35 million) following a decline of 3.2 percent on Monday.

Thomas Kierath, an analyst at Morgan Stanley, reported that for A2 Milk Company and Bellamy's, the risks are that their effective addressable market in China will shrink.

The number of Chinese baby formula makers in China humped on Monday after the commission released the action plan.  Yashili International Holdings Ltd gained as much as 16% in Hong Kong. Euromonitor International reported that policymakers in Beijing are trying to reassure Chinese parents and boost local firms in the segment, which is expected to be worth about $32 billion in 2023.

China's new plan is not intended to shut down foreign companies. On the contrary, the Chinese government is encouraging more foreign investments in its milk industry.

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