Record fines for dairy firms

China has levied a record fine of nearly 670 million yuan ($109 million) on six infant formula producers for price-fixing practices, the country's price regulator announced on Wednesday, in the latest move to fight anti-competitive practices in the market.

The six firms involved are Guangzhou-based Biostime, US companies Mead Johnson Nutrition, Abbott Laboratories, French Danone's Dumex, the Netherlands's Royal FrieslandCampina and New Zealand's dairy giant Fonterra.

These six firms were given fines equivalent to 3 to 6 percent of their annual sales in 2012, based on their attitude of cooperation and remedial actions, according to a statement released by the National Development and Reform Commission (NDRC) on Wednesday.

Mead Johnson was fined the heaviest amount at some 204 million yuan, while Biostime was hit hardest in terms of percentage of sales.

Three other firms - Wyeth Nutrition, Zhejiang Beingmate and Japan's Meiji - are exempted from the penalty given their cooperation in providing evidence and amending their misconduct, the NDRC said.

"Evidence shows that the involved firms maintained prices with downstream business operators through various means," the NDRC said the evidences confirm that the companies engaged in price fixing, which violates China's Anti-Monopoly Law, breaks the fair and orderly market competition and infringes on consumers' interests.

The fines against the infant formula producers broke the record high of 449 million yuan the NDRC imposed on domestic high-end liquor producers Kweichow Moutai and Wuliangye in February.

"Biostime Guangzhou shall comply with the punishment by paying the above-mentioned fine in a timely manner and shall continue to improve its internal control system," Biostime International Holdings said in a statement filed with the Hong Kong Exchanges and Clearing Ltd, where it is listed.

Dumex, Mead Johnson and Wyeth all said they respect the decision by the NDRC and will continue to take remedial measures, the dairy producers told the Global Times in e-mails on Wednesday.

Following the NDRC's investigation, the firms reportedly lowered prices by an average of 10 percent, which is estimated to have saved consumers 2.4 billion yuan a year.

The penalty is not a once-and-for-all solution, and continued and strengthened supervision on anti-competitive conduct is needed, Song Liang, a dairy analyst at Distribution Productivity Promotion Center of China Commerce, told the Global Times.

The sanction does not necessarily mean that dairy producers will refrain from engaging in unfair competition through other methods, such as price controls by reducing supply in the future, he said.

The NDRC's sanction did not affect domestic leading brands such as formula products under Yili Group and Mengniu Dairy-backed Yashili, which foreign brands saw as unfair, a Guangzhou-based formula distributor told the Global Times on condition of anonymity.

"The move is not aimed at protecting consumers but protecting domestic brands," Xia Tian, the mother of a 6-month-old baby, told the Global Times on Wednesday, who has a strong preference for foreign infant formula products over domestic ones.

The penalties imposed on the six infant formula producers are symbolic and will not make locally made infant formula more attractive to Chinese consumers, Wang Dingmian, a dairy expert, told the Global Times.

On the contrary, price cuts by these firms might win more consumers, and domestic brands should care more about quality to win consumers, Wang noted.

"We believe the investigation leaves us with a much clearer understanding of expectations around implementing pricing policies, which is useful as we progress our future business plans," Kelvin Wickham, president of Fonterra Greater China and India, was quoted as saying by Xinhua on Wednesday.

Foreign milk powder producers have been in the spotlight recently as Fonterra, the world's largest dairy exporter, recalled products in countries including China following a scare over botulism-causing bacteria.

Fonterra's recall brought back memories of a scandal over Sanlu - a locally produced tainted milk formula, which caused the deaths of at least six children and left more than 300,000 ill.

The Sanlu scandal drove a boom in imports of formula and built strong confidence among Chinese consumers in foreign brands.

China imported 800,000 tons of infant formula in 2012 compared to 140,000 tons in 2008. Mead Johnson, Dumex, Wyeth and Abbott's sales revenues accounted for half of China's 38.52-billion-yuan formula market in 2012, Xinhua reported on July 25 citing industry statistics and reports.