A few years ago a major health scandal in China delivered a bonanza for the Australian and New Zealand baby formulae industry. Some Chinese food producers reduced the milk content of the baby formulae they produced and replaced it with Melamin, a product used in plastics which created the illusion of a rich, creamy texture.
The result was catastrophic. There were a number of fatalities but thousands of tiny babies fell ill and many were only saved by immediate hospital treatment. The Chinese Communist government tried to coverup the scandal, but word of mouth raced the news across the country - and a legend was born !
Chinese mothers placed their faith in baby formulae from Australia and New Zealand. The locally produced stuff sat on shop shelves unwanted and the imported product was fought over by customers. We quickly found empty shelves here in Australia as Chinese mothers implored Chinese students studying here to buy the Australian product and send it by post to their home country. Despite Australian baby formulae manufacturers cranking up production we were unable to meet demand and this product quickly became high priced on the Chinese black market.
More producers piled into production in Australia and New Zealand and we started to make inroads into this backlog, but now it seems that the Communist state has moved to protect its local industry. The Chinese government has decreed that all foreign companies importing milk products into China will require fresh registration to sell their product across internal cross border channels. This is claimed to be part of new food safety laws and importers have been given until January 1, 2018 to gain certification.
The whisper has gone around that not all imports will gain acceptance and this has led to savage discounting by many lesser known Australian and New Zealand brands, desperate to clear stocks. The intentions of the Chinese government are unclear but it seems likely that this is a matter of national pride and pressure from the local baby formulae industry has brought a decision to force a greater market share by way of home consumption.
This news had the rumour mill running in overdrive. Bellamys - one big Australian producer - saw five hundred million wiped off it's Australian capitalization as its shares dropped by 43.5% in a single day. Expansion plans by other producers here have been put on hold. Decisions by the Chinese Communist government are opaque at the best of times, and this directive breaks new ground as far as food imports are concerned.
One of the problems with the Chinese market is its governments ownership of many manufacturing companies. These "State Owned Enterprises " or SOES are often heavily indebted to Chinese banks and run at a loss. In the past, the government has chosen to ignore these losses and to bail them out when necessary - but new thinking is starting to emerge. Allowing them to close would exacerbate the employment problem, hence forcing the public to use their production may mean closing out whatever imported products are competing for sales.
This move is unsettling. If China is starting to adopt a protectionist stance for local products it will make it harder to create a trade balance when we predominantly export mineral resources. rather than manufactured goods. Baby formulae has been a high profile success story. Now its continuation is in serious doubt !
No comments:
Post a Comment