Domestic brands have twice the nutritional value of foreign brands
A highly publicised report recently compiled by the Chinese Dairy Association claims that domestic brands of milk formula have twice the nutritional value of foreign brands. The popularity of imported brands and the need for consumers to procure them at a reasonable price has meant that the number of infant milk formula smugglers in China is twice that of heroin smugglers. Many may wonder if Chinese consumers will turn to domestic brands after the study. More importantly, do international manufacturers need to worry? It is likely that it might take more than a report commissioned by an official agency to change the minds of consumers in the Asian giant.
Imported brands held in high esteem
The majority of imported milk formula brands are held in high esteem in China. Two of the top three companies in the category are international - see chart below. Of these three, Mead Johnson Nutrition Co and Groupe Danone accounted for a combined total retail value share of 23% in 2012. That year, Mead Johnson, the leader, managed to gain more than one percentage point in retail value share. The significance of this is even higher in a category that managed to grow by 21% in retail value during 2012 (constant 2012 prices/fixed 2012 exchange rates).
Even more importantly, sales are forecast to double between 2012 and 2017. This means that an impressive US$13 billion will be added to the Chinese milk formula market in just five years.
Milk Formula in China. Retail Value Company Shares (2012)
Source: Euromonitor International
Safety first, nutrition second
The most obvious question regarding the popularity of foreign brands, which are relatively more expensive, is why they are so popular. The answer, according to industry consensus, is safety. Chinese consumers are losing confidence in locally produced milk after a series of safety scares. A survey conducted by the Beijing Times in early 2011 found that 70% of consumers would not purchase milk powder produced in China. The main concern for many is that toxic substances are illegally added to milk products to boost their apparent protein content. In 2008, infant formula was found to be contaminated with melamine, with at least six infant deaths attributed to this. In 2009, hydrolysed leather protein (a toxic substance extracted from leather scraps) was found in some Chinese milk. In the same survey, one consumer in Northeastern China commented, “My relative's daughter drinks imported milk powder. They never use domestic milk because there is a lot of poor quality milk powder here. My relative works at the dairy company and knows what goes on in the production process”.
Could certification be the answer?
If the Chinese Dairy Association’s objective is to increase the share of domestic brands by highlighting their nutritional value, it is clearly missing the point. Safety, or the perceived lack of it in the case of domestic brands, should be its main concern. Introducing a certification system that allows the full traceability of the ingredients used, possibly verified by independent international
agencies, would be an important step in building confidence. In the absence of this, the illegal introduction and selling of international milk formula brands at lower prices is bound to continue. In the meantime, heroin smugglers will continue to be the minority in Chinese police stations.