Friday, July 26, 2013

Further Government Focus on Infant Formula Standards

According to Dairy Products China News issued by CCM in June, On 4 June, the Ministry of Industry and Information Technology (MIIT) released an Action Plan for Improving the Quality Level of Formula Powder and Enhancing Consumer Confidence (the Plan), aiming to strengthen the competitiveness of domestic infant formula.

The Plan emphasizes several aspects as follows:
• Strengthening internal management procedures: MIIT will organize special inspections to assess the quality and safety of infant formula processors during June- August, aimed at driving them to improve and implement their internal quality and safety management systems, and take measures to improve consumer confidence. For example, they should publicize basic information about their business and make available a contact number for their chief executives on the National Food Industry Enterprise Credit Information Public Service Platform (a website which was launched in September 2011 by the China government to foster greater “integrity” amongst food enterprises). They should also make a public commitment in advertising media that they are working to ensure product quality and safety

• Strengthening management of industry development: the Plan aims to regularize the numerous investments in new plants or in plant refitting/expansion by reviewing these during the year and eliminating projects which are judged to be non-beneficial

• Boosting the industry’s restructure by encouraging M&A to achieve a more concentrated industry which can allocate more funds to R&D, whilst closing down backward production facilities

• Promoting technical renovations of infant formula enterprises to put in place better processes for quality control, safety and health, monitoring and testing of products, and establishing traceability systems

• Improving industrial standards: the government will speed up the formulation or revision of product standards, management and inspection standards, as well as increasing the transparency of the standard formulation process (an aspect which has encouraged no little controversy in the past)

• Strengthening the industry’s public image: in order to increase consumer confidence, infant formula enterprises should organize consumer visits to their plants. The industry association should work to raise awareness of food safety laws and regulations and relevant scientific knowledge, and strengthen the education and training of processors’ staff in terms of professional ethics and know-how

It is estimated that about half of the infant formula brands (both domestic and imported) will be eliminated from the Chinese market, if the Plan is implemented strictly. At present, most Chinese infant formula producers are small-scale. It is reported that overall local sales of infant formula stand at USD9.6 billion/RMB60 billion (USD6.2 billion/RMB38.5 billion in 2012 according to AC Nielsen), and that about USD1.6 billion (RMB10 billion) comprises product from small-scale producers, mostly operating as OEMs. If the Plan succeeds in requiring true traceability systems these products will not survive, opening up the USD1.6 billion (RMB10 billion) segment to national and some 2nd and 3rd tier brands.

However, such a dramatic level of industry restructuring seems ambitious to say the least − what the government wants and what the market provides may prove hard to align. Certainly the Plan represents the continuation of the State Council’s decision making. On 31 May, Chinese Prime Minister Li Keqiang held an executive meeting of the State Council and emphasized that the government will further strengthen the quality and safety supervision of infant formula. This followed the release by the China Dairy Industry Association in April of a report which announced that the quality of domestic infant formula is much higher than that of imported infant formula, while the latter is twice as expensive. Unsurprisingly this prompted a good deal of consumer questioning, as it flew in the face of their perceptions. Whether realistic or not, the Plan does at least set out to address such matters in a more credible fashion.

Table of Contents of Dairy Products China News 1306:
Xinjiang Dairy Expansion Faces Challenges
Dairy Industry Overview, January-April
Further Government Focus on Infant Formula Standards 
Mengniu + Yashili: The Start of China’s Dairy Industry Integration
Mead Johnson Focus On Online Sales
Western Stock Raising Targets Infant Formula Market
Fengxing Dairy Expansion
Yahua Dairy Sets Up JV
Ningbo Dairy Responds to Products Incidents
Chinese Government Supports Milk Production
Mengniu Launches UHT Yoghurt
Bimbosan Introduces Super Premium Formula

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