China: Will Tainted Baby Formula Spur
Justin Rohrlich August
16, 2013 2:16 PM
Given recent troubles, a decline in demand would only
compound existing price control problems.
In China, the Year of the Dragon saw a corresponding
“Dragon Baby Boom.” Beijing’s birth rate was the highest
since 2007, Hong Kong births rose 6.6% year-over-year,
and Taiwan births hit a ten-year record. However, feeding
Chinese infants has recently been a primarily foreign
affair. According to a 2012 editorial in China’s state-run
Global Times, “only 100% foreign-owned formula brands
are fully trusted” by the country’s parents.
This bias, said Global Times, was “not
a product of Chinese groveling before everything foreign,
as some critics claim,” but rather, a “deep, knee-jerk
mistrust of homegrown dairy brands, which have yet to
recover from a string of past abuses, the most infamous
being the melamine scandal in 2008 that killed six infants
and sickened tens of thousands of others.”
The imported formula market in China
grew roughly ninefold between 2002 and 2012, and is
expected to hit $13 billion by 2015, per UNICEF projections.
But what will happen now that New Zealand dairy producer
Fonterra (NZE:FCG) has recalled tons of formula from
Chinese shelves amid fears of botulism?
“I think the Chinese are going to start
questioning if New Zealand dairy is reliable,” Shawn
Hackett, a Boynton Beach, Florida, money manager with
a focus on agricultural commodities, tells Minyanville.
“New Zealand’s production has grown so much over the
past five to eight years, and they’ve really grown too
fast. Their whole MO was ‘maximize growth, maximize
growth, maximize growth,’ but now they’re feeling the
pain of not taking care of the infrastructure behind
Hackett explains that there was also
a “big baby formula price fixing scandal in China earlier
this month,” which involved Fonterra and five other
companies: Abbott Labs (NYSE:ABT), Mead Johnson (NYSE:MJN),
Danone (OTCMKTS:DANOY), Biostime (OTCMKTS:BTSDF), and
Friesland. The resulting “20-30% decline in retail prices
has hurt margins. Not only is there the problem of less
demand, but because prices have been forced down, it’s
a double-whammy for companies.”
Going forward, people “will buy their
products,” he continues, “but there’s going to be a
hesitancy there. At the end of the day, the only way
to have 100% safe products is more natural baby feeding.”
China, however, has one of the lowest
breastfeeding rates in the world: 28% (16% in urban
areas), compared to a worldwide average of about 40%.
So, the Chinese government has embarked on a massive
campaign to convince new mothers to breastfeed.
In May, UNICEF and the Chinese Center
for Disease Control and Prevention launched the "10
Square Meters of Love" campaign, which calls for
breastfeeding rooms to be provided in public buildings
and offices throughout the country.
The city of Zhengzhou is rolling out
“lactation rooms” on public buses to provide semi-private
areas for nursing.
And “breast masseurs” are even beginning to appear.
Oddly, a report from Zhou Fang of the
official Xinhua news agency claims that high-ranking
government officials appear to be taking their own advice
a bit too literally: They've begun engaging in breast
Taiwan’s Want China Times, “the milk-drinking parties
were a novelty sparked by recent revelations that wealthy
businessmen in Shenzhen have been hiring wet nurses
for their own use because they believe in the health
benefits of human breast milk. Corrupt officials are
often bribed with high quality feasts, and the milk
orgies are merely an extension of this practice.”