Infant formula wars: “National team” just a cheap gimmick
On October 14, Caixin’s New Century weekly magazine 财新《新世纪》周刊 published a cover story entitled “The milk formula war”. The article argues that the “milk formula national team” (奶粉国家队), as a campaign launched by the government to hype certain local infant formula companies was dubbed in the media, is just a gimmick from the Ministry of Industry and Information Technology. It was rumored that the government would pump funding into the “team” of six domestic companies, but in fact it transpired that the government would do no such thing, and was merely intending to send out positive signals about domestic formula brands.
Some of the companies that were included on the list are highly dubious. The company which was said to to stood to benefit most is Treasure of Plateau (高原之宝), which produces yak milk in Tibet. Yet the New Century article describes Treasure of Plateau as a company with low capacity, low visibility and high product prices. The only reason why the government decided to endorse Treasure of Plateau is due to its unique product: 90% of the yaks worldwide are found in Tibet, and the company has the potential to produce a luxury Chinese dairy product with export potential. Hong Kong Wissun is another company that was to be promoted in the campaign, although according to New Century the founders of Wissun had previously registered a company that suffered a lot of quality and safety issues.
One of the biggest local dairy companies, Sanyuan, did not make the list, even though it had recently announced that it will invest 1.5 billion yuan to build a milk powder processing plant with an annual capacity of 50 thousand tons. Bright Dairy, another leading dairy company from Shanghai that did not get on the list, also announced that it knew nothing about the establishment of the “national team”. Mengniu and Yili, two dominant domestic dairy companies, did make it on to the list.
What does it mean?
That New Century has published this article within just a few months of the launch of “national team” idea is a very clear indication that the pro-domestic formula campaign is not well-planned and that the market position of foreign formula brands is not going to be easily or quickly weakened.
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Companies and brands affected
Treasure of Plateau (高原之宝) (Privately held)
Hong Kong Wissun Nutritional Food International Group (Privately held)
Beijing Sanyuan Foods Company Limited (SHA:600429)
Danone SA (ADR)(OTCMKTS:DANOY)
Bright Dairy & Food Co., Ltd.(SHA:600597)
Mead Johnson Nutrition (NYSE:MJN)
Biostime International (HKG:1112)