Foreign Milk Powder Companies about to increase prices

Foreign milk powder producer Wyeth recently says it will increase its prices in China. It is the first time a foreign company has formally announced a price hike since last year's tainted milk scandal. Let's take a closer look with reporter Liu Min.

Reporter:
Wyeth has notified all supermarkets in China that it is raising the price of its milk powder between 7 and 10 percent.

One supermarket representative says:

"Our headquarters will send us the final notice to change the price tags. But before the formal notification, we will not increase the prices on our own, because the final prices must be determined by a unanimous decision made by several departments."

A manager from Wyeth talks about the price increase.

"The price of baby formula 2, 3 and 4 for bigger babies will be raised. And based on the current prices, we will have a 7 percent increase in prices."

Wyeth says it has to increase prices to cover higher production costs since the company has moved some of its plants to Europe and Australia.

But some experts in diary industry say that the current production price of 170 thousand yuan per ton of infant formula is much cheaper than last year's price of 400 thousand yuan a ton.

Data from the National Bureau of Statistics indicate the volume of foreign milk powder brands imported in May were 22 percent higher than during the same month in the previous year.

This indicates that foreign brands now have more power to affect market prices. Chinese parents usually do not complain about paying higher prices for infant formula for their children.

A3 "It doesn't affect us that much if the milk powder is more expensive now. We still can accept it even if it continues to rise."

A4 "For the child, we never calculate it."

But some experts in diary industry believe that Wyeth's price increase will cause other foreign baby formula makers to do the same.

Jing Baohua, General Secretary of Beijing Diary Industry Association, says:

"Wyeth is kind of leading the price increase this time. I think we will see a ripple effect that everyone else will raise their bars."

But currently there is still no clear indication that other foreign brands plan to raise their prices.
In comparison, some domestic baby formula brands are playing the promotion card by giving small gifts to their customers. Shoppers can usually find toys for their children in the domestic milk powder sections of supermarkets.

The melamine scandal in the domestic diary industry last year hurt the business of domestic diary companies.

Jing Baohua says the companies need time to restore their credibility among customers.

"The processing technology in the domestic diary companies is no different from those overseas. I believe as time passes and the companies make more efforts, the domestic diary industry will gradually revive."

Many foreign milk powder companies previously said they would not increase product prices during the melamine crisis. Some of them also said their goal was to establish a long-term reputation in China without pursuing short-term profits. But as the foreign brands gradually establish their credibility among Chinese customers, they seem to have gotten caught up in having a say in the market.

At the same time, the domestic baby formula producers who have lost their credibility still face a huge challenge to try to restore it.

For China Drive, I'm Liu Min.