(Yicai Global) Oct. 24 -- Prices for foreign-branded infant formula in China remain extremely high and constitute a heavy burden of expenditure for working families in the country, with the market in China worth around CNY120 billion (USD18.1 billion), insiders estimate.
If domestic milk powder prices return to reasonable levels, similar to prices seen overseas, young Chinese parents could save at least CNY30 billion (USD4.5 billion) a year.
Foreign-branded milk powder is higher-priced in China because brands in the market implement a high-price, high-profit strategy aimed at attracting Chinese consumers who blindly hold expensive products in high regard, an industry expert said.
Milk powder brands even compete to hike prices to highlight their upscale image, instilling a belief in these consumers that higher prices represent better quality.
The Chinese government has rolled out supporting policies to help revive domestic dairy companies in recent years, calling on them to conduct mergers, acquisitions and restructuring to become bigger and stronger, says Richard Hall, former chairman of Global Dairy Trade, which sets worldwide benchmark prices for dairy products.
The government has also unveiled a stringent infant formula registration system from an industrial chain perspective, greatly boosting Chinese dairy firms' confidence about future development, he said.
The formula registration system refers to measures released by China's Food and Drug Administration in June last year. The measures require that starting from Oct. 1, 2016, each company should produce no more than three formula series or nine formula products in general. It is regarded as the toughest policy imposed on milk powder makers in the country's history.
The finance ministry, commerce ministry and nine other departments have also jointly published their List of Imported Goods for Cross-Border E-Commerce Retail. This denotes that from Jan. 1 next year, infant formula powder products sold in China will require a registration certificate.
The imminent deadline will not only change the landscape of China's milk powder industry but could also lead to extremely fierce competition between Chinese and overseas milk powder makers.
Foreign milk powder brands will lose their advantageous position, while domestic brands will experience a full recovery, said Lv Chang, a renowned dairy expert and analyst at Shenwan & Hongyuan Securities Co., after analyzing the market shares and price formation mechanisms of leading milk powder brands.
The registration system will help eliminate the vast majority of second-tier and third-tier foreign brands as well as smaller domestic ones, freeing up a market worth at least CNY30 billion, he added.