China Infant Formula Regulation: New Zealand OEM Brands Hit Hard

May 1^st 2014 was the deadline for foreign infant formula manufacturers to register themselves with China CNCA in order to continue or newly export infant formula to China. The regulatory change has exerted a significant impact on NZ dairy exports, the world’s largest dairy exporter of dairy supplying around 90% of dairy products traded on the international market. So far, the following 8 infant formula manufacturers in NZ have been approved:

CNCA registered manufacturers are the sole channel for New Zealand dairy export to China and thus attract interest from hundreds of brand owners looking to set up OEM cooperation. While no regulation expressly states the maximum number of OEMs that can be registered by a manufacturer there is a concern about this among the industry. Industry think that the number of brands registered under a manufacturer should be dictated by production capacity and market forces but rumors have that although the MPI doesn’t directly restrict OEM activity, the MPI is far less willing to recommend infant formula manufacturers with too many registered brands to China CNCA for approval. This is a massive barrier since according to Chinese regulations, for infant formula registration application, the manufacturer must be recommended by the dairy competent authority in the country of origin. 

However an official from New Zealand's MPI told ChemLinked reporter that "MPI's recommendations for registration to Chinese authorities are based on manufacturer's compliance with New Zealand regulations including notified Overseas Market Access Requirements. There are no requirements in relation to the number of infant formula brands and manufacturer produces. MPI’s role is to facilitate market access for New Zealand companies, and provide information about market access requirements where these are known, including emerging requirements. MPI doesn’t direct companies to take specific commercial actions, such as the number of brands they produce. Decisions about the products or brands a company makes are entirely commercial. We encourage export focused business to utilize their contacts in-country to understand regulatory developments in their export markets. Any registration decisions are ultimately made by Chinese authorities. MPI cannot accept responsibility for the registration or market access decisions of overseas regulatory authorities".

The possible reason for less brands export is that manufacturers with numerous OEM brands might be subject to heightened scrutiny from China CNCA during the application and audit process. China’s CNCA places considerable emphasis on the relationship between manufacturers and their registered OEM brands and as such selection of brand is a serious matter. Most manufacturers are unwilling to OEM for new brands but instead select existing brands with a good reputation. A QA manager from one of the major manufacturers told ChemLinked that they only have a few brands and will most likely stick with these brands.

As of July 31st 2014, a total of 190 infant formula brands produced by 53 registered overseas infant formula manufacturers can be exported and sold in China. According to statistics, a single manufacturer usually produces 3-4 brands on average. According to our sources the OEM brand quota for some producers such as Sutton Group Limited is already full and many New Zealand infant formula manufacturers have suspended or stopped accepting new OEM offers. As one of three largest OEM manufacturers in NZ, before being acquired by Danone, Sutton Group made a group of “imported IF brands” owned by Chinese investors. An industry insider revealed that many companies are chasing New Milk, an infant formula manufacturer that still has 4 open slots under which OEM brands can register. Another approved manufacturer New Image is also attracting considerable attention.