New Milk Powder Policy Targets Domestic Dairy Enterprises; Companies Call on Regulators to Hold the Bowl Steady

Only half a month remains before the official implementation of the new milk powder policy. During the public consultation period for the "Administrative Measures for the Registration of Infant Formula Milk Powder Product Formulas (Trial)" (hereinafter referred to as the opinion), reports appeared in the newspapers that more than a thousand milk powder brands will exit the market. This policy, called the strictest milk powder policy in history, has won applause from the industry while also making companies worried.

Recently, a reporter from Securities Daily interviewed some domestic dairy enterprises. In their view, the main purpose of the above opinion issued by the State Food and Drug Administration is to address the chaotic phenomenon of too many and too miscellaneous brands in the domestic milk powder industry. It is powerful for industry management and consumers. This new policy only targets domestic enterprises, while enterprises registered abroad are not restricted. Without unified rules, it is still unknown how far the new policy can go and what effect it will have.

The New Dairy Policy Only Targets the Domestic Dairy Industry

In fact, since last year the state has intensified supervision of the infant formula milk powder industry, including renewing production licenses for infant formula milk powder enterprises and introducing policies for mergers and reorganizations of dairy enterprises.

This time, the State Food and Drug Administration has acted again, changing the previous milk powder formula “filing system” to a “registration system.” The same enterprise may not use the same formula to produce infant formula milk powder of different brands. Moreover, formulas for products of the same age range registered by the same enterprise should have obvious differences and be confirmed by scientific evidence. Each enterprise may not exceed 5 series and 15 product formulas.

According to statistics from the State Administration for Industry and Commerce, the number of domestic infant brands currently reaches more than 2,000, the differences among brand formulas are very small, and the practice of one formula corresponding to multiple products is widespread.

A person engaged in the infant milk powder industry told a reporter from Securities Daily that the brands of domestic infant formula milk powder are indeed chaotic, and many enterprises use one formula to make multiple brands and sell them in different regions. After the new policy is introduced, every domestic manufacturer must implement it. From the perspective of the industry, it should help brand concentration.

In his view, competition in the domestic infant formula milk powder industry will continue. The impact of this new milk powder policy on large enterprises is not great, while the impact on those brands with lower visibility is greater. In addition, under the policy that each enterprise may not exceed 5 series and 15 product formulas, some enterprises will give up regional markets they have worked hard to build over many years.

According to media reports, this new milk powder regulation may cause more than 1,400 brands to exit the market. Enterprises more affected may include Mengniu, Shengyuan, Sanyuan, Wandashan, and others, on the grounds that these enterprises have only one milk powder production license.

In response, Shengyuan said the impact of the new policy on the company is more beneficial than harmful. “Many enterprises have too many brands, which is not conducive to promoting the main brand, while Shengyuan's Organic Youbo and Super Youbo will definitely be retained.”

Sanyuan Dairy said the above policy does not restrict the company. Wu Songhang, general manager of the company's milk powder business unit, said in an interview with a reporter from Securities Daily that the purpose of implementing the new formula registration system policy is to address the chaotic phenomenon of too many and too miscellaneous brands in the domestic milk powder industry. The policy is beneficial to industry management and to consumers. After implementation, it will, for a period of time, greatly reduce some brands and purify the market.

Wu Songhang also said that this registration system requires enterprises not to exceed 5 series, which imposes almost no restriction on Sanyuan milk powder, because Sanyuan milk powder started relatively late and originally had few series products, so this impact is not great. Therefore, Sanyuan's product strategy will not undergo major adjustments.

Domestic Dairy and Imported Brands Should Be Treated Equally

If the new milk powder policy is implemented smoothly, it will certainly play a positive role in purifying the market. However, some dairy enterprises have expressed doubts about whether this policy can meet regulators' expectations.

Wu Songhang said that this registration system only targets domestic manufacturers, but makes no requirements for those whose factory registration addresses are abroad. This will lead to domestic enterprises rushing to acquire small foreign factories and then launching more series to sell back into China. In the long run, the effect of the registration system will be greatly reduced.

Similarly, a domestic dairy enterprise also told a reporter from Securities Daily that the new policy can effectively reduce the number of brands, making management and control easier, and can promote industry reshuffling and facilitate industrial upgrading. The starting point of the new policy is very good. The key is to revitalize the domestic industry. If what is revitalized is overseas milk powder, then the loss will outweigh the gain.

In response, Song Liang, a senior dairy industry researcher, said in an interview with a reporter from Securities Daily that China's milk powder industry is currently rapidly integrating with the international market, and advancing transnational supervision and strengthening the management of imported products has become urgent.

“At present, there are more than 2,000 domestic brands, at least half of which come from overseas, mostly produced by contract manufacturing. Against this background, the upcoming milk powder formula registration system, which is limited only to domestic manufacturers, will not achieve the effect of reducing brands and rectifying the market. Pure imported brands are not restricted by this regulation, which will only encourage more and more enterprises to produce overseas and then import into China, while also causing overseas enterprises to stop investing in domestic production. This will not only reduce domestic employment and tax revenue, but also further shrink domestic milk powder production.” Song Liang said so.

It is understood that domestic dairy enterprises and imported dairy brands are managed by two departments. The former belongs to the State Food and Drug Administration, while the latter belongs to the General Administration of Quality Supervision, Inspection and Quarantine. At present, it is the State Food and Drug Administration that issues milk powder regulations, so there is no impact on imported milk powder brands.

Securities Daily called the department responsible for imported food at the General Administration of Quality Supervision, Inspection and Quarantine to learn about the situation, but was unable to learn about any new policies concerning imported milk powder.

A person in charge of processing and selling overseas milk powder brands told the reporter that, from the current point of view, the impact of the new milk powder policy on the company is not very great, but he believes that in the future imported milk powder and domestic milk powder will certainly implement unified regulations. At present, the company is still paying close attention.

Wu Songhang said that managing China's already chaotic milk powder market well requires a systematic framework to accomplish, and this is not something one department can do well. It requires comprehensive governance from multiple departments covering milk sources, factories, formulas, distribution, and more (involving agriculture, quality, food and drug administration, industry and commerce, and other departments). Current management mostly has each department managing only one segment, and the systematic coordination among them is insufficient and needs to be strengthened.