Licensing for baby formula tightened in China

China's food and drug authority unveiled a new regulation on Wednesday that raises the bar for the licensing of domestic producers of baby formula. Experts believe it could result in an industry reshuffle and a potential price surge for domestic products. Released by the China Food and Drug Administration, the regulation sets stringent new requirements in areas that include production equipment, safety, product tracking, and the purchase of raw materials. Teng Jiacai, deputy head of the administration, said at a news conference that the regulation puts baby formula producers on a par with pharmaceutical companies. "The new licensing standard for baby formula producers is the strictest standard among all food producers," he said, adding that it is expected to boost consumer confidence in domestic brands. But the rules will increase production costs significantly, and as many as one-third of the current baby formula producers might opt to leave the industry, according to Song Liang, a dairy industry analyst at the Distribution Productivity Promotion Center of China Commerce. Under the rule to ensure product safety, producers will be required to control their own dairy sources if their products come from fresh and raw milk. "This requirement alone could strike a deadly blow to some small and medium-size producers, who have limited financial capacity to build or purchase the dairy sources," Song said. Some big companies, such as China Mengniu Dairy Co, welcomed the news: "This will be an opportunity to improve the product quality and increase the competitiveness of domestic products." According to the country's food safety law, food producers must be licensed before starting production activities. The government's Teng said that producers in compliance with the new regulation will be licensed by May 31. Producers who fail to comply must suspend operations. These will be granted a two-year window in which to rectify any problems. China's baby formula industry was hit hard after a scandal in 2008, when melamine was found to have been added to formula. At least six babies died and thousands became ill. Teng said the authority has been closely monitoring baby formula products for melamine after the revelations and has not found any recurrence so far. Prices could surge The new strict standards for producers of baby formula have given rise to concerns about a potential surge in product prices. Li Shengli, a researcher of the dairy products industry and a professor at China Agricultural University, said that additional costs — especially those related to testing and quality control — will be passed along to consumers. Ma Chunliang, deputy head of the administration's food production supervision department, believes that domestic baby formula products' prices will gradually align with international prices. Consumers' attitudes vary toward that prospect. Wang Guoying, frm Liaocheng, Shandong province, who has a 2-year-old son, said she may consider stopping her use of domestic products if prices go too high. "I chose the brand because it is popular in my city," she said. "It costs me 230 yuan ($38) a can, but I will consider switching brands if the price exceeds 300 yuan a can." But Yan Liyuan, a mother from Beijing, said she will buy domestic formula even if the price goes up. "I have been asking my friend to purchase a foreign brand from abroad and bring it back to me. This is time-consuming, and from time to time the brand will go out of stock," she said."If the quality of domestic formula improves, I will be more willing to buy it because it is much more convenient than what I am doing now."