Chinese milk powder makers to reportedly get 30B yuan in government funding to support sector consolidation

SHANGHAI , September 23, 2013 () – Chinese milk powder makers, including Inner Mongolia Yili Industrial Group Co Ltd <600887.SS> and China Mengniu Dairy Co Ltd <2319.HK>, are set to get 30 billion yuan ($4.90 billion) in official funds to support sector consolidation, media said.

As well as Yili and Mengniu, the first group of firms to benefit would include Feihe International Inc <ADY.BE>, Heilongjiang Wondersun Dairy Co Ltd and Treasure of Plateau, the official China Business Journal said in its Saturday edition, citing an unidentified source.

Authorities have said they want to consolidate the domestic milk powder sector to increase the ability of companies to compete with international rivals who dominate the lucrative premium end of China's $12.4 billion infant formula market.

Officials at Yili, Mengniu and Feihe were not immediately available for comment.

Chinese milk powder firms would gain the support in the form of government subsidies, funds from China Development Bank and favorable tax policies, the China Business Journal said. The total amount would be about 30 billion yuan, it said.

Milk powder is a sensitive topic in China after a 2008 scandal involving milk tainted with melamine led to the deaths of at least six infants and made many thousands ill.

That hit the reputation of domestic dairy firms and boosted the market share of imported brands such as Danone SA <DANO.PA>, Nestle SA <NESN.VX>, Mead Johnson Nutrition Co <MJN.N> and Abbott Laboratories <ABT.N>.

But international milk powder has recently come under the spotlight, with China temporarily banning some dairy products from New Zealand's Fonterra Co-operative Group Ltd <FCGHA.NZ>, after a scare.

Last month, the country's price regulator handed down record fines to mostly foreign milk powder makers.

Last week, official Chinese television said French food group Danone SA had bribed doctors and nurses to recommend its Dumex milk powder brand at a hospital in northern China, and said the practice was widespread in the sector.

China's Ministry of Industry and Information Technology has previously released a plan to slash the number of domestic infant formula firms in the highly fragmented market over the next five years to 50 from about 200 now as it looks to create stronger sector leaders.

According to data from market research firm Euromonitor, Yili and Wondersun were the two leading Chinese milk powder producers by retail value in 2012. Feihe and Mengniu were in the top ten. ($1 = 6.1212 Chinese yuan)

(Reporting by Adam Jourdan; Editing by Robert Birsel)

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