Steps to streamline dairy industry

Taking advantage of the government's crackdown on some foreign infant formula makers for their business malpractices, a few domestic dairy companies have increased the prices of their products by 5 to 13 percent, says an article on gmw.cn. Excerpts:

The demand for infant formula has grown in recent years, but consumers still find it difficult to get a satisfactory product. Domestic dairy companies lost people's trust after melamine-contaminated milk powder claimed the lives of six infants and left tens of thousands of children ill in 2008. The scandal forced Sanlu Group, then the largest producer of dairy products in China, into bankruptcy. The food scandals that followed dealt further blows to domestic dairy companies.

But after the recent safety scandals involving foreign companies' products, some consumers have been forced to buy domestic products. Domestic companies enjoy an advantage over foreign counterparts in terms of price because their products cost less. And now that some consumers have started buying their products, domestic dairy companies like Mengniu, one of China's largest dairy product makers, are raising prices to make more profits. Of course, production costs have increased in recent years, but the main reason domestic companies are raising prices is consumers' renewed interest in their products.

Although the cost of sourcing milk increased by 7 percent in July compared with June, the average increase in materials' prices was less than 5 percent. So some experts say it is unfair for some companies to raise prices of their products by up 13 percent. The dairy industry is also seeing more mergers and acquisitions, both among domestic and foreign brands, raising fears that big companies will indulge in more monopoly practices.

Since even a slight change in infant formula price affects a large percentage of China's population today, the National Development and Reform Commission, the country's top planning body, has cracked down on alleged price fixing and anti-competition practices of some companies to prevent unreasonable increase in prices and unfair competition.

(China Daily 08/21/2013 page9)