How Big Formula Bought China Foreign Companies Have Acquired a Third of China’S Booming Market for Baby Formula, Often by Flouting Rules Promoting Breastfeeding
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FOREIGN PREFERENCE, A family looks at foreign milk powder products at a supermarket in Beijing. REUTERS/KIM KYUNG-HOON CHINA MILKPOWDER How big formula bought China Foreign companies have acquired a third of China’s booming market for baby formula, often by flouting rules promoting breastfeeding. BY ALEXANDRA HARNEY SPECIAL REPORT 1 CHINA MILKPOWDER FLOUTING BREASTFEEDING RULES SHANGHAI, NOV 8, 2013 n the two days after Lucy Yang gave birth at Peking University Third Hospital in AugustI 2012, doctors and nurses told the 33-year-old technology executive that while breast milk was the best food for her son, she hadn’t produced enough. They ad- vised her instead to start him on infant for- mula made by Nestle. “They support only this brand, and they don’t let your baby drink other brands,” Yang recalled. “The nurses told us not to use our own formula. They told us if we did, and something happened to the child, they wouldn’t take any responsibility.” For Nestle and other infant formula producers, there is one significant com- plication for their China business: a 1995 Chinese regulation designed to ensure MELAMINE TRAGEDY: Chinese dissident artist Ai Weiwei made this creative statement - a map of the impartiality of physicians and protect China made of baby formula cans – to commemorate the 2008 melamine scandal that affected the health of newborns. It bars hospital 300,000 infants, including his then 4-year-old son. REUTERS/ TYRONE SIU personnel from promoting infant formula to the families of babies younger than six months, except in the rare cases when a The nurses told us not to about its enforcement. Neither did the State woman has insufficient breast milk or can- use our own formula. They told Administration for Industry and Commerce, not breastfeed for medical reasons. Nestle us if we did,and something which also has enforcement authority. told Reuters it supports this code and has happened to the child, they But the enforcement climate may be tried to strengthen its implementation. wouldn’t take any responsibility. changing. The new Chinese government Peking University Third Hospital declined that took office this year is in the midst of a repeated requests for comment. Lucy Yang widespread crackdown on corruption, and Most women have enough breast milk Beijing mother the practices of big formula appear to be to feed their infants, scientific studies show. in its cross-hairs. On Oct. 14, Paris-based The World Health Organization advo- Like Lucy Yang, most experienced the ag- Danone Corp said it would replace man- cates exclusive breastfeeding for the first gressive tactics of formula makers. agers in China after state-owned CCTV six months of life, starting within an hour Until very recently, enforcement of broadcast a report that the company’s for- of delivery. Breastfeeding leads to better China’s 1995 regulation had been rare. mula unit — Dumex — had bribed doctors health for babies and mothers, including Neither WHO nor UNICEF can point to in the northern city of Tianjin to gain bet- protection against infection for infants and a single instance where fines had been im- ter access for its product. lower rates of breast and ovarian cancer for posed since it was introduced. Reuters con- Dumex China expressed “deep regret” women, WHO says. tacted five prominent Chinese law firms over what it called “lapses” and promised A Reuters examination reveals that and – underlining the regulation’s obscurity “full accountability.” global infant formula companies have in Chinese legal circles - not one was fa- The same day, local officials said 13 found ways to skirt and violate the 1995 miliar with it. medical workers in Tianjin had been dealt code, which they support publicly. Reuters The National Health and Family a range of punishments from warnings to interviewed nearly two dozen Chinese Planning Commission, one of the govern- dismissals. women who have delivered babies at hos- ment bodies charged with enforcing the Big formula’s practices in China have pitals around China over the last two years. regulation, did not respond to a question also caught the attention of U.S. regulators. SPECIAL REPORT 2 CHINA MILKPOWDER FLOUTING BREASTFEEDING RULES Land of milk and money The top four foreign infant fomula makers in China spent more than 10 billion yuan ($1.5 billion) on advertising in 2012 versus 3 billion yuan ($440 million) in 2008. Together they control almost 34 percent of market. ADVERTISING SPEND BRAND AWARENESS (TIER 1-2 CITIES) SHARE OF CHINA’S MARKET Billion yuan Percent* Percent of retail market 6 90 15 14% 2008 2012 80% 4 60 10 $3.5 2 30 5 0 0 0 Nestle Mead Danone Abbott Nestlé Mead Danone Abbott Nestlé Mead Danone Abbott Johnson Johnson Johnson Note: Nestlé acquired Pfizer Nutrition/Wyeth in April 2012. Advertising spend for Nestlé combines Nestlé and Wyeth; brand awareness for Nestlé refers to Wyeth; Share of China’s market for Nestlé refers to Pfizer Inc. Advertising spend and brand awareness for Danone refers to the Dumex brand. *Based on China Reality Research’s (CRR) August 2013 survey of 40 domestic retailers and 240 middle-class parents in China. Sources: International Monetary Fund; CRR/CLSA; Euromonitor International. In August 2012, Pfizer Inc and its unit countries, and China is no exception. In - sickened nearly 300,000 infants and killed Wyeth agreed to pay more than $45 million the 1970s, growing concern that formula six, fueling national outrage over govern- combined as part of separate settlements marketed to mothers in developing coun- ment food safety controls. with the U.S. Securities and Exchange tries was contributing to malnutrition led The stain of Sanlu has proven hard to Commission (SEC) over violations of the to a global boycott of Nestle products. It erase. Because many Chinese parents still Foreign Corrupt Practices Act (FCPA). prompted the World Health Assembly, doubt the quality of domestic brands, in- In its complaint, the SEC charged that the WHO’s decision-making body, to pass ternational formula makers can charge a between 2005 and 2010, Wyeth paid bribes a code curbing the marketing of baby for- premium to domestic brands. Foreign for- to officials outside the United States, in- mula. Since then, 103 countries, including mula firms now control about a third of the cluding those in Chinese state-owned hos- China, have introduced legislation to im- Chinese market, according to consultancy pitals, to encourage them to recommend plement parts of this code. Euromonitor International. In 2012, two Wyeth’s nutritional products and to gain While campaigns promoting the ben- of the three best-selling brands were for- access to records of new births that could efits of breastfeeding have tainted formula’s eign. Mead Johnson has a 14 percent mar- be used for marketing, and then disguised image in the West, in China, public debate ket share, Danone controls 9 percent and these payments as expense claims. Under about formula is mostly about safety. In Nestle 7.5 percent. the terms of the settlement, Wyeth neither 2004, at least 50 children died from mal- China is fertile ground for formula admitted nor denied the allegations. nutrition after drinking fake infant formula makers. A traditional Chinese belief that with little nutritive value. Four years later, women should rest for the first month after GLOBAL BOYCOTT formula sold by local brand Sanlu - laced delivery gives older family members greater Infant formula is controversial in many with the industrial chemical melamine say in the feeding and care of newborns. SPECIAL REPORT 3 CHINA MILKPOWDER FLOUTING BREASTFEEDING RULES Relatives often prefer formula as it helps Hospital in eastern China were greeted babies sleep for longer stretches. Many with banners from Mead Johnson that families, moreover, prize pudgy babies, who read: “Healthy babies, happy mothers” and are seen as healthier. Formula-fed infants “Give baby the best start in life!” gain weight more quickly, studies show. A picture of a baby drinking from a bot- China’s high rate of cesarean sections - tle and the Mead Johnson logo adorned the the world’s second highest at 46 percent of floor guide. On the VIP maternity wing, all deliveries - leads more mothers to start nurse Xia Lingling – a new mother herself their babies on formula. Mothers fear drugs – said Mead Johnson representatives regu- used in the operation will affect their breast larly visited to drop off samples for new milk. There is also a common belief that mothers and to give talks to the staff. China’s chronic air pollution is harming Xia explained that every patient who mothers’ milk supply. delivers at the hospital and stays on the Government surveys show a low breast- VIP wing receives a free container of feeding rate - just 28 percent of Chinese Mead Johnson upon the baby’s birth. women were exclusively breastfeeding Mead Johnson “promotes their infant for- at six months as of 2008, down from 51 POSTER CHILD: The Mead Johnson logo on mula here . it’s a form of advertising,” percent in 2003. Independent researchers the wall of the Hangzhou Tianmushan hospital, said Zhang Yueqin, an obstetrician at the suggest the real figure is much lower. One Zhejiang province. REUTERS/ALEXANDRA HARNEY hospital. study published in the Journal of Health, A Hangzhou Tianmushan spokesman, Population and Nutrition in 2010 found who would only give his name as Fan, de- exclusive breastfeeding rates at six months Penalties for violations, however, are le- nied the hospital touted Mead Johnson in parts of China were as low as 0.2 percent. nient - the maximum fine is 30,000 yuan formula to mothers. He said promotional With infant formula sales in the United ($4,900).