China's introduction of more stringent restrictions in the country's growing infant formula gray market is taking its toll to overseas companies. GrainCorp and Bellamy's are already reporting experiences on the effects of the crackdown on their businesses such as slow sales and halted deliveries of products to China.
High Demand For Foreign Milk Products
Since the milk scandal in 2008, Chinese consumers have established a preference for foreign brands of infant formula. Most of them come from Australia and New Zealand, sold via online websites and apps outside China through a personal shopper and then shipped to Chinese consumers. This drove the growth in the gray market, called "daigou," where infant formula is a top product, Bloomberg reported, citing Nielsen.
Stricter Rules
To cool down the daigou industry, China has introduced a new tax scheme that took effect last April 8. Under this regime, infant formula is taxed at a rate of 30 yuan per kilo, pushing the prices of the product up by 20 to 25 percent. Nonetheless, they are still cheaper than equivalent local Chinese formula products. The country has also imposed a limit on the volume of infant formula products that foreign firms can sell in mainland China.
Baby Food On Close Watch
As reported by China Daily, there have been recent arrests related to sales of fake infant formula carrying the brands "Similac" and "Beingmate." With that, the government is keeping a keen eye on baby food and supplementary food products, inspecting ingredients included in the powder as well as how they are being manufactured. So while the government's quashing of the gray market is having bad effects on the business side, parents and their children could benefit in a way. But not until they could put their trust again on local products.
A consumer that the Australian Financial Review has spoken to expressed her willingness to still deal with the new rules, despite the inconveniences. "Although it's a pain and takes a lot of time we have to buy it this way for the safety of the children," said Zhou Qi.
