Chinese introduce tough new rules for infant formula sales
ASX-listed Synlait provides infant formula for Australia’s A2 Milk company..
Companies wanting to sell infant formula in the booming China market will have to meet strict new registration requirements from next Monday, the chief executive of New Zealand dairy company Synlait Milk, John Penno, has warned.
“From January 1, no infant formula products will be allowed to be imported into China unless they come from a registered factory and their brand has been registered and approved by the China Food and Drug Administration,” Mr Penno said in an interview with
The Australian.
“It will affect everybody who hasn’t got registered.”
The ASX-listed Synlait provides infant formula made in New Zealand for Australia’s A2 Milk company and milk products for other companies including Nestle, Danone and Mead Johnson. A2 Milk bought an 8.2 per cent stake in Synlait earlier this year.
Synlait received approval for A2 products from Chinese authorities in September after a registration process that began in May.
Mr Penno said the Chinese market for infant formula was by far the largest in the world with annual demand of a million tonnes, of which about a third is supplied from imported product.
This compares to the US market, which has a total demand of 150,000 tonnes a year.
But while the Chinese market is large, sellers from Australia and New Zealand face intense competition from European dairy producers.
Mr Penno said Chinese authorities had gradually been tightening restrictions on the importation of infant formula in the wake of a scandal in 2008 when 300,000 babies were affected after being fed formula that contained the chemical melamine.
The tighter regulations were aimed at bringing China into line with international standards.
Mr Penno said they were not about providing any commercial advantage for local companies in China.
“It’s all about keeping babies safe,” he said.
“The Chinese have been very open about the fact that they believe there are products getting into the market which are not at the right standard.
“They are doing the right thing in terms of making sure that if people manufacture an infant formula product it has to be done the right way.” He said there were no surprises in the new regulations, which would come into effect next week.
“The Chinese have been saying for the past seven or eight years what they are going to do and they have done exactly what they said they were going to do,” he said.
Synlait has an office in Beijing that keeps in touch with the Chinese FDA.
“We are in and out of the regulator’s office on a daily basis, making sure we are getting the approvals needed to make sure our brands get market access,” he said.
He expected that some companies whose products were not registered had pushed to import more into China ahead of the January 1 deadline.
But he said Chinese consumers would be wary of buying products not approved under the new regulations.
Demand for imported infant formula in China was strong because many parents were reluctant to buy locally made product.
China’s third-largest dairy company, Bright Dairy, is a shareholder in Synlait with a stake of more than 30 per cent.
The two companies have a joint venture in China, where Synlait makes infant formula product that is sold by Bright Dairy in China under its own brand.
Mr Penno expected the new regulations would prompt a consolidation of the market for suppliers of infant formula to the China market.
“There are a lot of small companies which have grown up supplying a market which had very little regulation around it,” he said.
“Now they will suddenly have to face some of the kinds of regulations which are perfectly normal in a more mature market.
“We think, in time, this will lead to consolidation in the market.”
Mr Penno said China’s big dairy companies were all setting up plants in New Zealand to provide infant formula for their market.
Synlait’s sales of canned infant formula grew by 17 per cent to 18,776 million tonnes in the year to the end of July.
Its revenue was up by 39 per cent to $NZ546.9m ($515m) on the back of increased sales and stronger dairy prices. The company told investors recently that sales were expected to rise to more than 35,000 tonnes for the current financial year.
Mr Penno said the market in China would move towards infant formula prepared in ready-to-drink containers. The market could also expand to ready-to-drink milk products suitable for older people.
“The market in China is going to move towards more liquid products,” he said.
“China is
the market and they are prepared to pay a premium for the right products.”
He said Chinese mothers would prefer ready-to-drink long-life infant formula to mixing the formula in their homes, which had very small kitchens.
The prospect of producing long-life fresh milk products for China was behind Synlait’s recent announcement of a $NZ125m investment in a new plant in New Zealand.
While this was initially planned to supply New Zealand retailer Foodstuffs, it would put the company in good stead to look at exporting the fresh product to China.
(20min delay)