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China

New regulations could force small formula companies to close

Post a commentBy RJ Whitehead , 24-Jan-2017

© iStock
© iStock

Last month’s decision by the Chinese food regulator to implement stricter food safety rules governing formulation and marketing is likely to wipe out a fair number of small- and medium-sized infant formula businesses in a highly competitive market.

In the latest of many attempts by authorities to safeguard food safety in the country, December’s new rules provide stricter guidance for base powder usage and stiffer penalties for misleading marketing tactics. 

Put simply, the safety buck stops with manufacturers. Companies can still use domestically produced powder, as well as base product manufactured overseas, but it is now the responsibility of that manufacturer to check the quality of its ingredients—regardless of where they come from. 

Food and drug administration officials will be on hand to monitor ingredient shipments and issue new product licences.

The other new regulation centres on label claims for infant formula, and requires both manufacturers and retailers to monitor labelling for misleading or exaggerated statements.

With over 100 manufacturers and thousands of product lines, China’s baby powder market is dripping in competition. That the market share of its top manufacturers is much lower compared to developed countries bears this cramped segment out.

The market has also been hit by scandals in recent years, which have shaken the trust of many parents and opened the market up to overseas products and brands, which in turn have gained a sizeable market share.

According to CCM, the growing pressure on manufacturers regarding their approach to labelling will lead customers to prefer established manufacturers with a trusted brand. 

Small and middle-sized enterprises are likely “not to stand their ground and be wiped out from the market,” the analyst said.

Moreover, it expects the new regulations to prompt many dairy manufacturers to look for different market segments. 

Some products that have seen increased production and focus recently are milk formula for adults, liquid milk, and organic infant formulae. Already several manufacturers have made efforts to try to diversify their business, avoiding more competition in the stricter regulated infant formula business,” CCM added.

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