Danone said it will cut prices for its main infant-formula products in China by as much as 20 percent after the government started an investigation into possible price-fixing by overseas producers.
The Paris-based company will cut prices of all its Dumex-branded today, it said in a statement yesterday.
Danone had said on Wednesday last week that it would be lowering prices of baby milk powder in China.
High prices charged by companies including Danone, Mead Johnson Nutrition Co and Nestle SA were the subject of a National Development and Reform Commission (NDRC) investigation, the People’s Daily reported on Tuesday last week, citing the agency.
Danone joins Nestle’s Wyeth brand and Dutch producer Royal FrieslandCampina NV in reviewing prices in China’s 95.2 billion yuan (US$15.5 billion) baby formula market, after the newspaper’s report on the probe by the nation’s top economic planning agency.
“Dumex has already undertaken an internal review with respect to relevant provisions of antitrust law in order to ensure that its operations are in compliance with relevant law and regulations,” Danone said in a statement yesterday.
The company said it has co-operated with the NDRC investigation and will maintain the price reductions for the next year.
The NDRC has evidence that the companies sold goods at high prices in China and their pricing increased about 30 percent since 2008, according to the People’s Daily.
Sales of baby formula in China grew 29 percent to 95.2 billion yuan last year, more than four times the size of the US market, according to industry analyst Mintel Group.
Besides infant formula milk, several other products aimed at infants and toddlers appear also to be exorbitantly priced in China.
Import duties are only a part of the reason, experts say — much of the premium for imported infant products can be ascribed to fears that locally made goods may be contaminated.
Foreign companies know this and many take advantage.
“Brands have been able to get away with this just because of the fear factor about buying unsafe products,” China Market Research Group principal analyst Benjamin Cavender said.
“If you look at how consumers spend their money, they are disproportionately willing to spend money on anything that their child will be eating or what will be touching their child’s body,” he said.
In 2008, six infants were killed in China and thousands fell sick after consuming milk tainted with melamine. There have been several food scandals in recent months, involving rat meat in mutton, excessive hormones in chicken meat and toxins in rice.
However, when it comes to children, the fear of domestic goods goes beyond food to items like toys and diapers. Many local toys have been found to have toxic levels of substances like lead, arsenic and mercury.
For instance, Sophie the Giraffe is a teething toy taking over the world one baby mouth at a time. The toy, handmade in France from Malaysian rubber sap, is priced around US$30 in China, nearly three times the price in France.
Sophie the Giraffe retails for US$10.33 on Amazon’s French Web site.
Under Chinese law, Sophie would face an import duty of 10 percent if imported as a rubber item and a value-added-tax (VAT) of 17 percent. If it is imported as an animal toy, there is no import duty, but the VAT still applies. Transport and distribution costs would also apply.