Wyeth Nutrition, the infant formula company bought by Nestle last year, is cutting prices in China, the first such move since it was one of five foreign infant milk formula companies put under investigation for possible price-fixing.
Wyeth said in a statement it had been actively cooperating with China's National Development and Reform Commission and was responding by cutting prices and improving sales and marketing practices.
Nestle, Danone, Mead Johnson Nutrition Co and Abbott Laboratories confirmed on Tuesday that they were being investigated for possible price-fixing and anti-competitive practices.
Mothers turned away from Chinese milk powder in 2008 when infant formula tainted with the melamine killed at least six babies and made thousands sick with kidney stones.
China has since made efforts to crack down on persistent food safety problems that have included chemical-laced pork and infant milk contaminated with cancer-causing agents.
"Wyeth Nutrition decided to implement a price reduction of key products from July 8 through 2014. The average reduction will be at 11 percent with the biggest single product price reduction at 20 percent," it said.
Analysts said the investigation could result in fines and tougher rules governing imports into an infant milk market set to grow to US$25 billion by 2017. The firms could face fines of up to 10 percent of annual sales, Xinhua news agency quoted experts as saying.
Brand recognition
Some Chinese infant formula companies have started forming partnerships with foreign firms to try to boost brand recognition and gain technical know-how.
"Since consumer confidence in the Chinese products is seen as improving, it can be a chance to test if confidence in local brands can hold its own against the foreign competition," said Linus Yip, chief strategist at First Shanghai Securities.
Foreign brands may also soon have to rely on their Chinese partners if they want greater access to the Chinese market.
China has expressed interest in bringing the supply chain under the control of Chinese firms as part of its goal to reduce the number of domestic formula producers to 10 from more than 200 within two years.
The Ministry of Industry and Information Technology said in June that integration of the milk powder industry was expected to lead to 10 companies with revenue exceeding 2 billion yuan.
As part of this consolidation, China Mengniu Dairy Co Ltd signed a takeover deal last month to buy Carlyle-backed Yashili International Holdings Ltd in a deal worth about HK$12.5 billion (US$1.6 billion). In May, Mengniu announced a joint venture involving France's Danone.
Domestic milk powder brands want to appeal to Chinese residents who can afford the baby formula made by international rivals.
At supermarkets in large cities such Shanghai, 900 grams of infant formula made by an international firm can cost up to 275 yuan (US$45), compared to about 100 yuan for domestic formula in lower-tier cities.
Milk producers boasting foreign ingredients have raised prices to the same range as global brands in an effort to distinguish themselves from the local crowd.
