China intensified a crackdown on medical staff and tightened advertising rules for the infant-formula industry as companies including Danone face allegations they paid bribes to boost sales.
China “strictly bans” hospitals from receiving benefits from baby-formula makers and requires staff to retain receipts for milk powder products purchased, according to a statement on the central government’s website today. Baby-formula makers are also required to emphasize the benefits of breastfeeding in their labeling, it said.
China is tightening regulations after food-safety concerns as well as bribery and price-fixing claims prompted the Communist Party to overhaul an infant-formula industry that’s expected to expand more than 70 percent to 133.5 billion yuan ($22 billion) by 2015. The new rules ban baby milk companies from marketing in hospitals and medical staff from promoting milk powder to pregnant mothers and their families.
“What infant-formula companies have to do now is make sure their agents are playing by the rules, and strengthen the message that they need to play by the rules,” said Matthew Crabbe, Asia Pacific director of research at Mintel Group.
Any impact on the sales of baby-milk companies is likely to be on the “periphery,” as producers mainly sell in retail channels, not in hospitals, Crabbe said in a telephone interview.
The country’s hospitals will also strongly promote breastfeeding to mothers, according to the statement issued jointly by China’s Food and Drug Administration, the National Health and Family Planning Commission and State Administration for Industry & Commerce.
The World Health Organization recommends breastfeeding babies exclusively for the first six months and says promoting formula can undermine young children’s health by misleading mothers into thinking it’s the healthier alternative.
Global baby nutrition companies have faced road blocks in their China expansion this year. At the request of the U.S. Securities and Exchange Commission, Mead Johnson Nutrition Co. (MJN:US) said this month it started an investigation into whether bribes may have been paid by its Chinese unit, in violation of Chinese and U.S. law. Mead Johnson, China’s largest baby formula company by market share, gets almost a third of sales from China.
Danone (BN)’s Dumex baby nutrition unit also said this month it will take disciplinary measures and strengthen governance in China after a government body and state media accused it of paying doctors to drum up sales. An official investigation found that 116 employees in 85 medical institutions had broken rules since 2011 and accepted payments from the French formula maker, according to the northern Chinese city of Tianjin.
The Paris-based company, which also sells its Nutricia formula on the mainland, has cut its full-year forecasts after a product-safety scare and regulatory problems in China slowed sales growth.
Glenview, Illinois-based Mead Johnson and Danone were among the six dairy companies being fined in August for price fixing and violating anti-monopoly laws.
China is looking to consolidate its baby formula industry to raise product standards amid food safety concerns and aims to groom as many as five local companies with sales of more than 5 billion yuan by the end of 2018, the China Securities Journal reported in August, citing unidentified people. The government is also requiring domestic infant milk producers to own their milk source.
Chinese consumers’ distrust of local milk has driven them to source products overseas or turn to foreign brands after milk powder tainted by chemical melamine killed six infants in China in 2008.
Mead Johnson is ranked first in China’s milk-formula market with a 14 percent share last year and Hangzhou Beingmate Group was No. 2 with 10 percent, according to researcher Euromonitor International. Danone was third with a 9.2 percent market share.
China is cracking down on possible misbehavior by companies. In July, four senior GlaxoSmithKline Plc executives were accused of crimes involving 3 billion yuan of spurious travel and meeting expenses as well as trade in sexual favors. Alcon, the eye-care division of Novartis AG, said it is probing reports that its China employees paid doctors to boost sales.
To contact Bloomberg News staff for this story: Liza Lin in Shanghai at email@example.com