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July 9, 2013

CHINA: Beijing claims firms knowingly broke law on dairy pricing

Foreign suppliers of milk products to the China market suspected of colluding to maintain high prices could face hefty fines if found guilty, according to the China State Food & Drug Administration (SFDA).

Companies at the centre of China’s investigation into anti-trust violations in the dairy sector were knowingly breaking the law and had instructed staff to delete communications detailing their involvement in the alleged price fixing, Beijing has claimed.

The China State Food & Drug Administration (SFDA) has issued details of the allegations the country’s government is investigating in a wide-ranging probe that has taken in the likes of Nestle, Danone and Fonterra.

The SFDA added some of the companies under investigation are suspected of threatening retailers with penalties, including the restriction of further supply, if they did not sell the products at designated prices.

The agency claimed it had evidence some staff had been told to erase written communications that showed their involvement in the alleged price fixing.

The probe over the alleged price manipulation of milk products, particularly infant formula, is being carried out by China’s National Development and Reform Commission (NDRC).

The SFDA said anti-trust officials at the NDRC “believe these companies are involved in limiting competition on milk prices, driving up the price of milk; weakening competition between brands, serious damage to the interests of consumers, and undermining the fairness of market competition”.

If found guilty, the companies involved could face fines ranging from 1-10% of their annual sales, the SFDA said.

The investigation at first appeared to centre on infant formula producers that also include Abbott Laboratories, FrieslandCampina, Mead Johnson. It now looks to have widened to include Fonterra, which has said it is co-operating on a “current broad-ranging investigation of consumer dairy products”. Packaging giant and supplier to dairy companies Tetra Pak is also being investigated for alleged abuse of its market position in China.

In a statement today, one of the infant formula companies under investigation, Hong Kong-listed Biostime International Holdings, admitted its agreements with distributors in China on the price of infant formula could have broken anti-trust rules.

In response to news of the investigation, Nestle, Danone, FrieslandCampina and Mead Johnson have all said they are co-operating with the probe. The three Europe-based companies have since said they would cut prices on their infant formula. Abbott is also said to have decided to lower prices. There has, as yet, been no move to cut prices from Mead Johnson.

Additional reporting by Dean Best.

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