Reuters: Regulatory News: REFILE-WRAPUP 1-China fines foreign milk powder makers after price probe

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REFILE-WRAPUP 1-China fines foreign milk powder makers after price probe Aug 7th 2013, 03:16 Tue Aug 6, 2013 10:39pm EDT * Mead Johnson, Fonterra, Biostime say fined by authorities * China had investigated possible price-fixing * Infant milk market in China to be worth $25 billion by 2017 By Kazunori Takada and Martinne Geller SHANGHAI/NEW YORK, Aug 7 (Reuters) - China fined three companies including Mead Johnson Nutrition Co and New Zealand diary giant Fonterra in relation to a probe into price fixing and anti-competitive practices by foreign baby formula makers. The third company penalised was Hong Kong-listed Biostime International Holdings. All three said they would pay the fines, the first to be publicly announced in the wake of the antitrust review by the National Development and Reform Commission (NDRC), which coincides with separate pricing investigations into the pharmaceutical sector as well as gold trading. Foreign infant formula is highly coveted in China, where public trust was damaged by a 2008 scandal in which six infants died and thousands of others were sickened after drinking milk tainted with the toxic industrial compound melamine. Foreign brands account for about half of total sales in China and can sell for more than double the price of local formula. Mead Johnson, the maker of Enfamil formula, said it would pay a penalty of about $33 million. The company, based in Glenview, Illinois, gave no details on what the NDRC said it had done wrong. Fonterra, the world's biggest dairy exporter, said it had been fined NZ$900,000 ($710,700). It also did not say why it had been penalised but added it would give additional training to sales staff and review its distributor contracts. "We believe the investigation leaves us with a much clearer understanding of expectations around implementing pricing policies," Kelvin Wickham, president of Fonterra Greater China and India, said in a statement. Fonterra is embroiled in a separate milk powder contamination scare that has led to product recalls in China, Hong Kong and elsewhere in Asia. Infant milk producer Biostime, which imports most of its products, said it had been fined 162.9 million yuan ($26.6 million) for price-fixing. Other companies being investigated include French food group Danone, Nestle and Abbott Laboratories . An Abbott spokeswoman said the firm had cooperated with the NDRC but declined to comment further. Danone and Nestle officials were not immediately available for comment. In the wake of the NDRC probe, Mead Johnson, Danone, Nestle and others cut prices on their baby formulas by up to 20 percent in China, where the infant milk market is set to grow to $25 billion by 2017. LOCAL COMPANY NOT FINED The milk sector is still relatively young in China, with consumption of dairy products growing at an annual compound rate of 20 percent, a contrast to U.S. and European markets where demand has been shrinking in the past decade. Analysts see the probe as possibly part of a broader Chinese plan to boost consumption of local infant milk products. Chinese milk powder maker Zhejiang Beingmate Scientific Technology Industry and Trade Co Ltd said on Tuesday it had been investigated by the NRDC over price-fixing but had been spared a fine because it took the initiative to report its monopoly agreement and gave important evidence. Some analysts also said the pricing investigation could result in tougher rules governing imports. Indeed, the China Food and Drug Administration is proposing tightening conditions for the granting of licences for milk powder production, including requiring producers to have their own controlled milk sources and research and development capabilities. In a statement late on Tuesday, the regulator said it was seeking public comment on the proposals, which also include requirements for license holders to strengthen hygiene practices and management standards. Mead Johnson said its fine, which resolves the NDRC review, would reduce its full-year earnings by about 12 cents per share, but it reiterated its 2013 earnings forecast for profit, excluding one-time items, of $3.22 to $3.30 per share. Shares of Biostime, which has a market value of $3.3 billion, were up 4 percent in early trade, beating a 0.3 percent drop in the benchmark index. It shares resumed trading after being suspended the day before. The company had said previously that a unit based in China's southern city of Guangzhou was being investigated by the NDRC over suspected price-fixing. Link this Share this Digg this Email Reprints

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