Danone to Cut China Infant-Formula Prices by Up to 20%

Danone (BN) said it will cut prices for its main infant-formula products in China by as much as 20 percent after the government started an investigation into possible price-fixing by overseas producers.

The Paris-based company will cut prices of all its Dumex-branded products in the Asian country by between 5 to 20 percent, starting tomorrow, it said in a statement today. Danone had said on July 3 that it would be lowering prices of baby milk powder in China.

High prices charged by companies including Danone, Mead Johnson Nutrition Co. (MJN) and Nestle SA (NESN) were the subject of a National Development and Reform Commission investigation, the official People’s Daily reported on July 2, citing the agency. Danone joins Nestle’s Wyeth brand and Dutch producer Royal FrieslandCampina NV in reviewing prices in China’s 95.2 billion yuan ($15.5 billion) baby formula market, after the newspaper’s report on the probe by the nation’s top economic planning agency.

“Dumex has already undertaken an internal review with respect to relevant provisions of antitrust law in order to ensure that its operations are in compliance with relevant law and regulations,” Danone said in today’s statement. The company said it has co-operated with the NDRC investigation and will maintain today’s price reductions for the next year.

Zhejiang Beingmate Technology Industry & Trade Co., the Hong Kong-listed arm of China’s second-largest baby formula company by market share, will cut product prices by 5 percent to 20 percent to increase its competitiveness and market share, the company said in a filing to Shenzhen’s stock exchange today. Beingmate wasn’t named in the People’s Daily report as a producer being probed in the government investigation.

Mead Johnson had a 14 percent share in China’s milk-formula market last year, according to industry researcher Euromonitor International. Hangzhou Beingmate Group Co., the parent of Zhejiang Beingmate, was second with a 10 percent share, followed by Danone’s 9.2 percent and Inner Mongolia Yili Industrial Group Co.’s 7.8 percent.

The NDRC has evidence that the companies sold goods at high prices in China and their pricing increased about 30 percent since 2008, according to the People’s Daily. Sales of baby formula in China grew 29 percent to 95.2 billion yuan last year, more than four times the size of the U.S. market, according to industry analyst Mintel Group.

Food processing and packaging company Tetra Pak Group is also being investigated by China for possible abuse of market dominance, another sign of increasing scrutiny into the operations of overseas companies. Drugmakers including GlaxoSmithKline Plc (GSK) are being probed separately in the country.

-- Liza Lin. Editors: Anjali Cordeiro, Stephanie Wong

To contact the reporter on this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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