On August 7th, China National Development and Reform Commission (NDRC) issued heavy fines totaling 668.73 million RMB to 6 companies, namely Biostime, Mead Johnson, DanoneDumex, Abbott, Friesland (Friso), and Fonterra, due to their price fixing and anti-competitive behavior.
Kunlin Xu, director of the Price Supervision and Anti-monopoly Bureau (PSAMB) under NDRC, said that many of them deliberately broke the law by conducting vertical monopoly agreements with downstream dealers through email, telephone or face-to-face communication.
According to Xu, the PSAMB started to prepare for a probe into the alleged monopoly practices in the dairy industry in March. From the beginning of May, there have been over 300 individual investigations conducted by PSAMB staff. Some companies were extremely reluctant to be investigated and knowingly made false disclosures to investigators and willfully hid or deleted communication records.
Evidence has come to light proving the alleged corruption and detailing the specific methods used such as manipulating supply, issuing financial incentives and fines, all aimed at getting to comply with their vertical monopoly agreements. All of the companies confirmed they would not contest the penalties. Several also said they were committed to addressing the concerns raised by the government.
The severity of fines was determined in consideration of such factors as the nature, extent and duration of the violations. A mitigated punishment or exemption from punishment may be given if the suspicious companies operate closely with the anti-monopoly authority, voluntarily report activities and provide evidence. In conclusion, 10 companies identified as using techniques to ensure a monopoly are to receive the following penalties:
Beingmate (Zhejiang), Meiji (Shanghai), Wyeth Nutrition (China), and Wyeth (Shanghai) were exempted. Biostime (Guangzhou) was fined 162.9 million RMB, 6% of its sales revenue in the previous year; Mead Johnson (China) 203.76 m, 4%; Dumex171.00 m, 3%; Abbott (Shanghai) 77.34 m, 3%; Friesland (Shanghai), 48.27 m, 3%; and Fonterra (Shanghai) 4.47 m, 3%.
Since 2008, major exported milk powder brands have raised their prices by 10% every year, attributing the price hikes to modified formulas and new packaging. This August witnessed the first downward trend in the value of dairy commodities. NDRC’s efforts have proven successful but the question remains is how effective a deterrent these actions will prove?
There are one or two hundred million new-born babies every year in China, bringing with it a demand for breast milk substitutes. Chinese consumers are wary of their own country’s dairy industry, which has a torrid history of quality lapses and criminality whilst foreign brands amass big sales based on a reputation for purity and safety. The government has taken actions to raise the threshold for market authorization to further enhance the integrity of this market. (See Chemlinked News: The List of 128 Infant Formula Manufacturers in China Released by CFDA) This move may ultimately prove counterproductive with the larger multinationals been dished up a bigger slice of the pie and further facilitating manipulation of market forces.
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