Tariff Cuts Impressively on Foreign Milk Powder Price Impulse

In our country's milk powder market, "foreign milk powder" received a big gift at the beginning of the year. But they don't seem to intend to make any "return."

According to the notice of the Customs Tariff Commission of the State Council on the tariff implementation plan for 2012, China began to reduce tariffs on more than 730 commodities, including foreign milk powder, on January 1. The average tax rate was 4.4%. New Zealand infant formula milk and yogurt also achieved zero tariff.

For "foreign milk powder", this is undoubtedly even more powerful. However, under the dramatic tax cuts, several large ocean milk powder brands have not yet made price cuts, but have recently started a round of price increases.

On January 4, a person from Abbott China told the Daily Economic News that there is no current plan to adjust prices. The Mead Johnson side stated that because the tariff price reduction was for finished products, Mead Johnson imported large package base powder, so the cost was not affected.

Tax reduction hard to drop

According to the 2012 tariff implementation plan announced by the Ministry of Finance, the partial hydrolysis formula of milk protein, the deep hydrolysis formula of milk protein, and the tariff for special infant formula of amino acid formula were reduced from 20% to 10%. The retail packaged food for infants and young children was from 15 % drops to 5%. In addition, New Zealand’s tariffs on dairy products exported to China continue to fall, and the tariffs on infant formula and yogurt will cancel the previous tax rate of 5% and directly achieve zero tariff.

At present, the domestic "foreign milk powder" 900g installed prices are mostly 300 yuan to 400 yuan, or even higher. Wang Dingmian, chairman of the Guangzhou Dairy Association, told the Daily Economic News reporter that the price of imported powdered milk was 80-120 yuan. According to the import quotation of 100 yuan, the new import tax rate will save a can of 900g of milk powder for about 10 yuan.

In the past two years, as the cost of various raw materials has increased, the prices of several “foreign milk powder” brands that have a strong presence in the domestic milk powder market have also continued to rise. According to public information, since January 2010, the retail price of milk powder for terminal units under the brand name of Ausnutria has increased by 12% to 15%; in February, Mead Johnson's nationwide price increase for infant formula milk powder has increased by 8%; in May, Mesophyll, Mead Johnson, etc. The price of milk powder was raised, and the price of a barrel rose by around 10 yuan. Dumex new products were listed, and the price of old products increased by 15%.

After many rounds of price increases, the reduction in tariff costs will finally be realized in 2012. Will this make the price of "foreign milk powder" loose? “Don’t cut prices because of tariff reduction.” Wang Dingmian said that from the current market situation, the current prices of major foreign brands of milk powder such as Wyeth, Nestle, Abbott, etc. are still not loosening.

At the end of 2011 when news of tariff adjustments was about to be announced, several “foreign milk powders” actually staged a round of price increases. Among them, Wyeth's high-end product line "Qi Fu" series rose by about 8%.

“This is the best time for them to increase their prices.” Wang Dingmian believes that because there is no Chinese brand that can compete with “foreign milk powder” and domestic consumer confidence has not yet recovered, in this context, the tariff The reduction will only become a new profit growth point for foreign milk powder.

Local brand pressure

The new import tax rate for milk powder is not only related to foreign brands of milk powder, but also closely related to the local dairy industry.

According to analysis by industry insiders, there is a wide disparity between the profitability of “foreign milk powder” and domestic branded milk powder, in which the average gross profit rate of imported infant milk powder reaches 60% to 80%, and that of high-end milk powder can reach 80% to 100%. It is about 30% to 40% or even less. Under such gross profit margins, local milk powder still cannot compete with expensive “foreign milk powder”. Despite rising costs caused by rising costs, several major infant milk powders are very cautious on rising prices.

The imported milk powder is increasingly fierce to attack the domestic market. Wyeth, Nestle, Abbott, Mead Johnson and other brands of milk powder have set up R&D centers in China to develop products that meet the tastes of Chinese infants and children, with the intention of targeting the Chinese market. The data shows that China imported milk powder increased from 140,000 tons in 2008 to 480,000 tons in 2010. Wang Dingmian expects the data for 2011 will be more than 600,000 tons. He believes that the drop in import taxes will further stimulate the market demand for foreign milk powder.

Zhou Sianran, a food industry researcher at China Investment Advisors, believes that “at the moment, the benefits of tariff reductions will have to be reflected in the end market, and it will take some time; and the benefits of tariff reductions will be allocated to costs, and the impact on costs will be relatively small. Taking into account the positioning and marketing strategies of foreign milk powder in the Chinese market, the benefits brought by the reduction in tariffs may still be overridden by foreign milk formulae, and the possibility of price reduction is less.”

“The expansion of the pass to 'Foreign brands' will surely cause a huge impact on domestic brands, especially the positioning of high-end domestically-produced milk powder companies.” Zhou Siran analyzed that the reduction in tariffs reduced the cost of foreign milk powder (if prices are not adjusted), Undoubtedly, it further increased the gross profit margin of its products and corporate profit margins, further increased its market competitiveness, and aggravated the competitive pressure of domestic milk powder brands.