World’s largest dairy exporter may help curb China’s milk formula smuggling

March 27, 2013
March 27, 2013

The world’s largest dairy exporter, New Zealand’s Fonterra, will start selling its own brand of baby milk formula in the world’s largest market for it, China. Demand for premium, foreign-brand formula is high as Chinese shoppers remain paranoid over domestic milk powder five years after Chinese-produced formula with melamine sickened over 300,000 babies and killed six.

Milk powder from New Zealand is especially popular, accounting for 85% of China’s $2 billion in milk power imports last year. Fonterra plans to start selling its formula by mid-year and will build a plant to make UHT milk in addition to the three dairy farms it already has in the country. Right now the company manufactures formula on behalf of Chinese companies.

Chinese imports of whole milk powder (WMP) and skimmed milk powder (SMP) are expected to grow 12% and 18%, respectively, this year.

Chinese imports of whole milk powder (WMP) and skimmed milk powder (SMP) are expected to grow 12% and 18%, respectively, this year.

Increasing foreign branded milk formula supplies could at least dampen the hunger for foreign formula smuggled into China from Hong Kong, Australia, New Zealand, and other countries. The haphazard underground industry consists of recruiting Chinese students abroad to buy and ship formula to China; forums for overseas Chinese on where and how to mail the formula back to the mainland; as well as Chinese nationals simply buying up supplies while on vacation abroad. Last month, Hong Kong put a limit on purchases of two cans per person and arrested 45 “baby milk smugglers.”

But it’s not all smooth going for Fonterra, which is connected to the melamine scandal: Fonterra had a stake in Sanlu, the Chinese dairy firm responsible for mixing melamine in its products. Moreover, it is part of an industry that is heavily scrutinized and especially vulnerable to rumors. Last month, the company had to fight Chinese reports that milk formula products recalled by Chinese regulators were made with Fonterra powder. The company can expect to keep fighting that good fight once it starts selling its own milk formula in China.

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