China slashes tariff on infant milk formula – will NZ companies heed the price signal?

The New Zealand dairy industry is set to benefit by China’s decision to drastically slash the tariff on infant milk formula to bring down prices and secure supplies for its fast-growing middleclass.

The move comes just one day after China’s biggest dairy company Yili announced it will invest $214 million in establishing an infant milk formula plant in South Canterbury. Other Chinese companies are set to follow to capitalise on New Zealand’s reputation for safe milk-sourced foods.

China’s Ministry of Finance announced it will impose temporary annual tariff rates below the MFN (most favored nation) rate of duty on over 780 imported products in 2013. Particularly, the tariff on special formula baby milk powder and baby retail food will be reduced to five per cent, much lower than the 15 percent MFN rate.

The move will be a big fillup to the dairy industry worldwide. New Zealand is the second largest offshore provider of infant milk for the Chinese market with an 18 per cent share; Singapore has 37 per cent and Australia 15 per cent.

The move is expected to stimulate local demand in China for imported infant milk powder which is currently three times the price of local products and has reached a price point which is causing local complaints.

China’s Wahaha Group said it will spend at least $276 million on dairy products from New Zealand and Australia over the next year.