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Nestle’s Wyeth to Reduce China Milk Prices Amid State Probe

July 3, 2013

Price cuts come after Chinese government started investigating possible pricing and anti- monopoly violations by overseas companies.

Nestle SA’s infant nutrition unit Wyeth will cut prices of key products in China after the government started investigating possible pricing and anti-monopoly violations by overseas companies.

Wyeth, which Vevey, Switzerland-based Nestle acquired from Pfizer Inc. in April 2012, will lower the prices of certain infant-formula products by 6 percent to 20 percent, and promised not to increase prices of new products for a year, it said today in a statement. The average reduction will be 11 percent.

"It was a bit of a surprise and it may trigger further pressure on prices for all of the players in that market," Jon Cox, head of Swiss equities at Kepler, said by phone. "That’s probably going to have an impact on the profitability of these companies. It’s not positive, that’s for sure."

China’s National Development and Reform Commission, the nation’s top economic planning agency, has started an investigation into the pricing of infant formula sold by Wyeth and other foreign companies including Danone and Mead Johnson Nutrition Co., the People’s Daily newspaper reported yesterday.

The NDRC has evidence that the companies sold goods at high prices in China and their pricing increased about 30 percent since 2008, according to the report, which cited the agency. Melamine-tainted milk powder killed at least six infants that year, fanning distrust among Chinese consumers of local milk and driving them toward foreign brands at home and overseas.

‘Damage Limitation’

Wyeth’s price cut "looks like damage limitation and I’d imagine others will follow," said James Targett, an analyst at Berenberg Bank in London. "The question is whether this will make the consumer aware it is being overcharged, or whether it will boost volumes."

The NDRC didn’t answer at least five calls or respond to a fax seeking comment on its investigation.
Wyeth conducted its own checks and discovered some distributors and resellers had undertaken some "price control measures," it said in the statement. The Nestle unit immediately adjusted its marketing practices to make sure its operations complied with laws, Wyeth said.

In a separate statement today, Wyeth said it would cancel a plan announced in May to raise the prices of its S-26 range of infant-formula products sold in China by 4 percent. The price increase had been designed to cover higher costs of raw materials and formula upgrades. Wyeth will absorb the increase in raw-material prices instead, the company said today.

Price Cuts

Wyeth said the price cuts would save consumers an estimated 450 million yuan ($73 million) in the next 12 months.

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