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Milk Smugglers Top Heroin Courier Arrests in Hong Kong

April 26, 2013

Since March 1, more people have been arrested for smuggling milk powder than were detained all of last year for carrying heroin.

For border officials in Hong Kong, baby formula trumps heroin.

Since the former British colony on March 1 restricted outbound travelers to two 2-pound cans each, a syndicate has been cracked and more people have been arrested for smuggling milk powder than were detained all of last year for carrying heroin.

The reason? Mainland Chinese demand, fueled by distrust of locally made food after product-safety scandals that included the deaths of at least six babies due to tainted milk. The U.K. and New Zealand are among countries with limits on milk sales as bulk purchases of brands such as Danone’s Aptamil and Mead Johnson Nutrition Co.’s Enfamil caused local shortages.

"Most of them only have one child, and the child is the most important thing in their life," James Roy, a Shanghai- based analyst China Market Research Group, said of Chinese parents, most of whom are subject to the government’s one-child policy. "They want to be extra careful."

The crackdown on milk buyers gives Danone, Nestle SA, and Mead Johnson an opportunity increase their market share in China at the expense of domestic rivals such as China Mengniu Dairy Co. and Inner Mongolia Yili Industrial Group Co.

Market Share

Sales of baby formula in China grew 29 percent to 95.2 billion yuan ($15.4 billion) last year, more than four times the size of the U.S. market, according to industry analyst Mintel Group. Milk powder retails at higher prices in mainland China, which excludes Hong Kong, Macau and Taiwan.

The country’s top five international sellers of formula -- Danone, Nestle, Mead Johnson, Abbott Laboratories, and Wyeth LLC -- will increase their market share by 5 percentage points this year to about 55 percent, China Market Research estimates.

Foreign formula brands are treated as luxury goods because of distrust for the local supply chain, said Stuart Roper, a professor at Manchester Business School.

"Baby milk scandals in China happened because of corruption, because regulation was very lax," Roper said. "Until things change in China, and they’re not going to change overnight, only then will the consumer be able to feel assured."

In 2008, at least 22 companies were found to have sold dairy products containing melamine, a toxic chemical that can make diluted milk appear to have a higher protein content. In 2011, Hohhot, Inner Mongolia-based Mengniu, China’s largest producer, said moldy cattle feed led to excessive toxin levels in its milk.

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