China milk makers including Yili, Mengniu to get state support: report

Sun Sep 22, 2013 5:16am EDT
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SHANGHAI (Reuters) - Chinese milk powder makers, including Inner Mongolia Yili Industrial Group Co Ltd (600887.SS: Quote) and China Mengniu Dairy Co Ltd (2319.HK: Quote), 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: Quote), Nestle SA NESN.VX, Mead Johnson Nutrition Co MJN.N and Abbott Laboratories (ABT.N: Quote).

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: Quote), after a scare.

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

Boxes of Mengniu's milk products are seen at a supermarket in Beijing June 19, 2013. REUTERS/Kim Kyung-Hoon