Stricter regulation for China’s infant formula business
China’s Food and Drug Administration (CFDA) has revealed stricter regulations for base powder and misleading marketing strategies for China’s dairy enterprises in December. According to CCM, the effects are likely to wipe out a decent amount of small and middle size companies in the very competitive market.
After some scandals involving Chinese infant product manufacturers, such the big melamine scandal in 2008, the Chinese government is tightening supervision of domestic enterprises in their implementation of the regulations on the administration of formula registration for infant formula. The regulations, revealed in early December 2016, are dealing with stricter rules for base powder usage and misleading marketing tactics. The new regulations may restructure the market competition and lead to stricter controls.
Chinese companies can use domestically produced base powder as well as overseas produced ones. But, whether the production is taking place in a plant that is related to the dairy enterprise or a completely independent external producer, the purchasing company has to check and ensure the quality and safety of the base powder before using it in the production, according to CCM. Furthermore, the local food and drug administrations have to do controls in the producing plants whenever they apply for a new product license or a license renewal. It is not decided yet if the check of Chinese producers is also required for overseas plants.
The other regulation pertains to misleading marketing activities. It particularly targets the labelling of infant products and the label claims. Both manufacturers, or rather retailers, as well as the local administrations, now have to check any products and make sure that the labelling is neither false nor infringing. The labelling regulations are supposed to make sure that product names, declaration of ingredients and the function description are true and not exaggerated or misleading.
According to CCM, the growing pressure on manufacturers regarding label management will lead customers to preferring big and established companies with trusted brands and service. Small and middle-sized enterprises may suffer as a result.
What’s more, the new regulations lead many dairy producers to look for new markets and products. Some products that have seen increased production and focus recently are milk formulas for adults, liquid milk and organic infant formulas. Several manufacturers have already made efforts in this new market to try and diversify their business, avoiding more competition in the more strictly regulated infant formula business.
China’s infant formula market very competitive, with over 100 manufacturers and thousands of product lines that have flooded the market in the last decades. As a result, the market share of the top manufacturers is much lower compared to market share concentration in other developed countries. Also, some scandals in recent years have shaken the trust of consumers with domestic infant formula producers, opening up the market for overseas products and brands.
