Get a demo Do I subscribe? News sign-up
Print

Trust gap hits Chinese infant formula

News, 20 September 2016

BEIJING: The effects of an eight-year old scandal continue to reverberate as new research shows Chinese consumers still overwhelmingly prefer foreign brands of infant formula to domestic ones.

Any hopes that the reputation of local producers had recovered from the incident in which a least six babies died and thousands were hospitalised as a result of consuming formula milk contaminated with melamine appeared illusory given the results of a brand survey from FT Confidential Research.

This showed that, far from regaining the confidence of Chinese buyers, local brands were losing it, as, in the second quarter of 2016, 61.9% of respondents said their families most regularly purchased foreign-branded formula, up from 58.9% in the fourth quarter of 2015.

That increase may be connected to the arrest of nine people in April in connection with the production and selling of 17,000 cans of counterfeit baby formula under popular brand names.

The trend was most evident in higher-income groups, where a 6.7 percentage point jump meant that 73.4% of respondents with an annual household income of more than Rmb300,000 ($44,820) were choosing this option.

While overseas brands bring greater assurance, that in itself is not enough for some who, lacking any trust in the domestic dairy industry no matter who runs it, prefer to seek out imported formula.

Some 9.5% of respondents said their family most regularly bought wholly imported infant formula – up from 6.1% in FT Confidential Research"s last survey – and this figure rose to 14.9% among higher-income consumers.

The preference for overseas brands is down to trust but the effects of lower import taxes and falling global milk prices have also made them more affordable as the price gap between foreign and domestic brands has fallen by more than ten percentage points over the past 18 months.

The space for international brands is also set to get larger as, under new ingredient and selling regulations, the number of Chinese infant formula brands is anticipated to fall from more than 2,000 to just 400.

Other factors affecting the category include a falling birth rate and a higher incidence of breast-feeding.

Data sourced from Financial Times, Yibada; additional content by Warc staff