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Why prices of foreign milk powders raised frequently?

(People's Daily Online)

08:11, August 02, 2012

Recently, prices of milk powders from many foreign brands, including Dumex and Mead Johnson, were raised once again. Since the beginning of 2012, foreign-brand milk powders have raised their prices more frequently, from "once per six months" to "once per three months." The rate of rise has also increased from about 10 percent to 20 percent or even higher. Why do foreign-brand milk powders keep raising their prices?

Are their reasons for the price rise believable?

Foreign milk powder brands mainly have four reasons for raising prices of their products, the cost reason, formula reason, tariff reason and package change reason. Are these reasons believable?

Since the beginning of 2012, the price of raw milk material for making milk powder has been declining in the international market. The international price of the bulk milk powder material has declined from 39,000 yuan per ton in July and August 2011 to a steady level of between 30,500 and 31,000 yuan per ton in the first quarter of 2012. A dairy industry expert Wang Dingjin said, "The price of the milk powder material is very steady recently and does not increase the cost of the milk powder production. Although marketing and labor costs may have increased a little, it is not a reliable reason for raising prices of the final products."

According to insiders, foreign milk powder brands add vitamins and minerals into their milk powder products according to Chinese people's dietary habit and physical quality, but costs of these additives are very little. It is not convincing to raise the price in the name of adjusting the formula slightly. Some brands also take the import tariff as the excuse for raising prices of their milk powders, but in fact, China decreased its import tariff in the beginning of 2012 and therefore they have no new tariff burden.

The last reason is "package changing." However, the reporter compared the new and old packages and found that the two packages are fundamentally same except for difference of their colors. A salesman said that the package has changed, but the formula has not and the tastes of the old and new package milk powders are also completely same.

The vice secretary-general of the Shanghai Dairy Association Cao Ming said that the true reasons for foreign-brand milk powders to raise prices at will are their huge speaking right and price-fixing right in the market. Currently, 80 percent of the domestic high-end milk powder market of China is occupied by foreign brands, and the market share of domestic-made milk powders has been very small for recent years.

High prices do not mean high qualities.

In recent years, domestic-made milk powders experienced many quality problems frequently, and it has increased Chinese consumers' reliance on foreign-brand milk powders. An expert said that foreign milk powder brands have seized this consumer psychology of China. Wang said that since it is difficult for foreign milk powder brands to offer low prices in the current situation, they should manage to guarantee qualities of their products at least.

Read the Chinese version: “洋奶粉”凭啥一年四涨


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