China to consolidate milk powder sector by 2018

China is set to launch a proposal to consolidate domestic infant formula manufacturers as part of its efforts to boost consumption of local products.

Under the proposal, China plans to reduce the number of manufacturers to around 50 over the next five years and promote the growth of large dairy companies.

The Chinese government expects the ten leading domestic milk powder manufacturers to have about 80% share in the infant formula market, with three to five firms targeting revenues of CNY5bn ($818m) per annum, reported Reuters citing the China Securities Journal, a state-run newspaper.

Inner Mongolia Yili Industrial Group, Feihe International and Wondersun Dairy are likely to gain from the consolidation plan, the newspaper said.

In line with this plan, the Ministry of Industry and Information Technology (MIIT) has prepared a draft to encourage mergers and acquisition of infant formula firms, and submitted it to the country’s top officials.

With this proposal, China is seeking to strengthen local infant formula companies and allay fears about food safety.

China has been heavily relying on foreign manufacturers for baby formula following a 2008 scandal which involved milk products containing melamine that killed at least six and sickened nearly 300,000 children.

Over the past few months, foreign infant formula makers in China have come under increased scrutiny – last week, imports from New Zealand-based dairy cooperative Westland Milk Products were suspended after elevated levels of nitrates were found in the company’s dairy products.

Earlier this month, the National Development and Reform Commission (NDRC) of China imposed $109m fines on six international and domestic baby formula manufacturers for alleged price fixing and anti-competitive practices.

In addition, China banned imports of whey protein and infant formula from dairy giant Fonterra after the co-operative revealed that certain batches of its whey protein contained botulism-causing bacteria.

Currently, there are a total of 127 infant formula companies in China with an overall output of 600,000t per year, and only three companies have an annual output of 30,000t or more.