Infant formula industry faces shake-up

The China Food and Drug Administration signaled on Tuesday its intention to consolidate mainland dairies that make baby formula, experts said.

Wang Dingmian, chairman of the Guangzhou Dairy Association, said that statements on the administration's website suggest a goal of merging or closing up to half the 128 baby formula manufacturers by March to improve quality control and corporate management.

"It is aimed at further cleaning up the dairy sector and boosting confidence in the industry," he said.

The central government has been trying to revive the country's infant formula industry since the 2008 melamine scandal, in which six children died and at least 300,000 others became ill after drinking tainted milk.

One statement published on Tuesday is a draft rule that describes the conditions a company must meet before producing infant formula. The administration is seeking public comments by mid-August.

"The draft, once adopted, will be the new standards by which the fate of the dairy businesses will be determined," said Cao Mingshi, deputy secretary-general of Shanghai Dairy Association.

The other statement is a list of the 128 licensed baby formula manufacturers on the Chinese mainland. The list includes Chinese dairy giants including Inner Mongolia Yili Industrial Group as well as multinational companies, such as Wyeth, Mead Johnson, Abbott and Dumex.

Experts said that only about 30 producers are operating regularly in the market.

The quality management system that the dairy companies establish will have to comply with the country's Good Manufacturing Practices, which are required for drug manufacturers, according to the administration. The new rules will reflect Premier Li Keqiang's requirement that supervision of baby formula be as strict as it is for medicine.

It includes a series of sanitation and quality control standards.

"Some companies, especially the old ones that haven't been renovated, won't survive the new standards," Wang said.

Small companies, especially private ones, will likely be eliminated because of new requirements covering research and development.

The draft requires an infant formula producer to have no fewer than five research staff, including at least two senior engineers or those holding a master's degree. Experts said some small businesses do not even have a technician.

"No innovative research means zero vitality and competitiveness. Recipes and production engineering from the 1980s are undoubtedly inadequate today," Wang said.

Sun Jing, brand manager of Shanghai Chenguan Dairy, said she expects the authorities to provide more details of the new rules.

"The Shanghai Food and Drug Administration will send quality inspectors to tell us the detailed rules and give instructions," she said.

Ye Xinping, deputy general manager of Shanghai Howell Nutritional Dairy, said, "Our company meets most of the standards and will accelerate improvements."

Control over raw materials is also a weakness of the dairy businesses, Wang said.

Four foreign brands -Dumex, Karicare and Cow & Gate, all subsidiaries of Danone Group, as well as Abbott - have been caught up in concern that ingredients provided by Fonterra Cooperative Group Ltd, the world's largest dairy exporter, might have been tainted with a bacterium, Clostridium botulinum.

"Not every batch of infant formula is tested for bacteria, but businesses should have carried out sample checks," Wang said.

On Wednesday, Fonterra CEO Theo Spierings told Reuters that all contaminated stocks have been removed from the market. The announcement came after Abbott recalled some of its infant products on Monday. Abbott said that it recalled two batches of formula that were produced on Fonterra's production line, which had not been cleaned after producing the tainted products.

Dumex also recalled two more batches of formula as a precaution on Wednesday.

In Hong Kong, the city's health authority announced that it had received five cases of babies who had taken formula from Cow &Gate and were suffering discomfort, the Wenwei Po reported.