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Dairy Wars

Mainland Chinese, desperate for untainted baby formula, are wiping out supplies in Hong Kong

In China, infant formula is something you just don’t scrimp on. That’s partially because of a widespread reluctance to breastfeed. It’s also due to China’s remarkably toxic track record with infant formula production, most notorious of which is the 2008 melamine contamination scandal that killed six babies. Whatever the cause, it’s helped make infant formula a massive money-spinner for multinational companies.

The problem is that mainland China doesn’t have enough of it.

More Chinese couples entering the middle class means that ever-rising numbers of Chinese parents will pay a high price to keep their (state-mandated) one child safe. Because conventional importers haven’t been able to keep up, the next easiest thing has been to raid the milk formula supplies in Hong Kong, which is an autonomous territory of China. A gray market of an estimated 3,000 mainland traders has cropped up, though the 42 million mainland tourists who throng Hong Kong each year stock up as well.

Now a two-pound can that sells for $35 in Hong Kong, goes for $6 more in mainland China, reports Global Voices Online.

And that’s been terrible for Hong Kong parents. The milk formula shortage in Hong Kong first developed in December 2010. Since then, rising prices and scarcity—the latter caused by pharmacists reserving stock for mainlanders, whom they can charge more—have left them struggling to keep their infants fed.

The Hong Kong government has finally stepped into the fray. Just before Chinese New Year in early February—the most popular time for giving gifts—setting a two-can limit for mainlanders returning to China via Shenzhen, the border checkpoint. Today, that rule became permanent. It also set up a hotline for Hong Kongers to order formula from overseas manufacturers.

There are a couple of potential problems with this plan. First, it might violate Hong Kong’s World Trade Organization obligations (paywall).

Dicier, though, are the escalating tensions between the mainland and Hong Kong. As the Los Angeles Times put it, “the dispute cast in sharp focus Hong Kong’s fear of being swamped by 1.3 billion mainlanders, who are increasingly affluent and mobile.” That isn’t making things easier for mainland and Hong Kong politicians pushing for increased closeness.

But for foreign companies selling baby formula in China, the Hong Kong crackdown probably means a windfall in both sales and margins. That said, having a “(Not) Made in China” brand alone doesn’t guarantee success. This is particularly true given the government’s apparent push to burnish the quality credibility of domestic formula, and to highlight that foreign products aren’t necessarily safer. (Incidentally, one of these is Heinz. Soon after the US company launched a baby food business in China, the government declared it to contain too-high levels of vitamin B2 and not enough B5.)

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