Nestle unit cuts baby formula prices after China probe

SHANGHAI - A unit of Swiss food giant Nestle said it is cutting prices for baby formula in China by as much as 20 per cent after the government launched a investigation into alleged price-fixing by foreign firms.

Wyeth Nutrition confirmed the investigation by China's top economic planner, which has been reported by state media, and pledged in a statement "immediately" to cut prices on some formula products by six to 20 per cent.

The response came after media reports on Tuesday that the National Development Reform Commission (NDRC) had launched a probe of foreign baby formula makers for high prices, which it claimed resulted from a monopoly-like situation.

"Wyeth Nutrition has always respected and been willing to abide by China's laws and regulations and is actively cooperating with the anti-monopoly investigation into the company," the firm said late Wednesday.

It promised not to raise prices on new formula products for a year and said it had improved marketing policies to ensure they were in line with regulations. A spokeswoman for Wyeth's parent Nestle confirmed the moves but declined further comment.

China is by far the world's largest market for baby formula, according to consumer research group Euromonitor.

A 2008 scandal involving tainted formula that killed six children and sickened more than 300,000 has prompted Chinese consumers to shun local brands and created huge demand for foreign products, both those sold through normal channels and informally imported.

Buyers looking to supply Chinese consumers caused shortages of formula at retailers in several European countries and Australia earlier this year.

As well as Wyeth, other foreign companies being investigated by the NDRC include France's Danone, Mead Johnson Nutrition, Abbott Laboratories and Dutch firm Royal FrieslandCampina, which produces the Friso brand, according to state media.

Shanghai mother Wan Leilei buys the Abbott brand for her six-month-old son, saying she is undeterred by the higher price. "I, as well as most other Chinese, will spare no money when it comes to kids," she said.

"As long as I trust the brand... price changes, either up or down, do not affect my buying decisions that much."

The Chinese government is under pressure to ensure quality products at reasonable prices following repeated food safety scandals, an analyst said.

"There is a bit of a tendency to direct extra attention at foreign firms," said Ben Cavender of Shanghai-based consultancy China Market Research Group.

"Any situation where it's being construed that companies might be selling premium products and artificially keeping prices up, there's going to be a backlash," he added.

Mead Johnson said earlier this week it was cooperating with the enquiry and was providing products at "good value" to customers.

"The company is fully cooperating with the recently reported Chinese government anti-trust review of resale prices in the infant formula market and will provide information in response to enquiries received from government officials," it said.

The government has vowed to crack down on safety violators and called for strict monitoring of milk powder production, in an attempt to restore public trust in domestic companies.

Shares of the companies involved in the investigation, which has not been directly confirmed by the government, plunged in US trading on Wednesday.

Mead Johnson sank 8.1 per cent while Abbott Laboratories fell 1.8 per cent.