July 2, 2013 1:25 pm

Nestlé ‘co-operating’ with China probe into baby milk prices

A Chines baby is fed formula milk©Alamy

Nestlé has said it is co-operating with an investigation launched by the Chinese government into possible competition violations in the mainland infant formula market, while local media reports say three other foreign baby milk producers are also being probed.

Nestlé on Tuesday said only that it was “actively co-operating” with an investigation by the National Development and Reform Commission (NDRC), which is charged with enforcing certain provisions of China’s 2008 antitrust law.

The Beijing Times reported that Abbott Laboratories, Danone and Mead Johnson Nutrition were also involved in the probe, along with Wyeth Nutrition, now owned by Nestlé. Abbott declined to comment and Danone and Mead Johnson did not respond to telephone calls.

China’s voracious demand for foreign-made milk has squeezed supplies around the globe, leading to rationing of sales in nearby Hong Kong – and allowing producers to push up prices for mainland sales, retail analysts said.

None of the companies would confirm the nature of the investigation, but competition lawyers in China said it appeared to relate to whether there was fixing of minimum prices for distributors, known as “retail price maintenance”. The NDRC has brought other high-profile cases in this area of the law recently, including one involving the price of Chinese traditional white spirits, or baijiu.

The high price of imported infant formula in China has become a sensitive political issue for Beijing, after the 2008 baby milk tainting scandal that sent mainland parents scurrying to the perceived safe harbour of foreign brands.

“The government is trying to make safe baby formula more accessible to everyday Chinese,” said Shaun Rein, of China Market Research in Shanghai. “This is a way to get foreign manufacturers to rein in their price increases”.

The Beijing Times said news of the investigations emerged after Biostime International, a Hong Kong-listed infant nutrition manufacturer, said last week that its Guangzhou unit was being investigated by the NDRC under the anti-monopoly law.

“The main purpose of the investigation is in relation to an alleged violation, of Article 14 of the Anti-Monopoly Law of the People’s Republic of China, by Biostime Guangzhou in managing the market sales prices at which the distributors and retail sales organisations sell our products,” the company said in a filing to the Hong Kong stock exchange.

Lawyers in China said that article of the law targets so-called retail price maintenance, whereby producers tell third-party distributors or retailers what price to sell their products at. It is also often viewed as an antitrust violation in Europe and many US states.

In February, the NDRC’s Guizhou and Sichuan offices imposed fines of Rmb247m ($40.3m) on Chinese traditional white spirit makers Maotai and Wuliangye for the same violation. The Guizhou price bureau said this restricted competition and harmed the interests of consumers.

Adrian Emch, an antitrust expert at Hogan Lovells in Beijing, said the decision to target retail price maintenance as a competition violation highlights the fact that NDRC “is now moving beyond cartel cases and has started to target other types of anti-competitive conduct . . . they are fishing in a bigger pond now”.

Additional reporting by Zhang Yan and Louise Lucas

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