Formula exporters face hit

China is pushing to restore consumer confidence after food safety scares including the 2008 melamine scandal. Photo / Christopher Adams

Infant formula companies are shocked after learning the details of new regulations they will face from next month when selling product in China.

The rules, which come into force on May 1, will require baby milk brands to have "clear control" of the manufacturing process and a "close association" with manufacturers to gain registration with the Chinese Government.

Food Safety Minister Nikki Kaye revealed yesterday that about 10 per cent of the $200 million of infant formula New Zealand exports to China annually was produced by firms that do not own factories and instead have their products produced at contract manufacturing facilities.

Around 50 companies producing roughly 70 brands operated in this small-scale end of the market, she said, while the remaining 90 per cent of baby milk exports to China were controlled by larger-scale manufacturers.

Kaye said the new import requirements would have "a very significant impact" on exporters who are unable to demonstrate a close association with a manufacturer. "Our embassy in Beijing is seeking transition arrangements to help those brand owners who need to make significant changes."

The changes follow a systems audit of New Zealand infant formula manufacturing facilities by Chinese officials last month.

Minister for Primary Industries Nathan Guy said 12 out of 13 factories still had "actions they need to undertake" to become registered to export product into China.

While the regulatory changes have been expected since early last year, New Zealand Infant Formula Exporters Association chairman Michael Barnett said there had been a bit of shock in the industry when the details were announced yesterday.

"MPI [the Ministry for Primary Industries] all the way along had said this was a systems audit and so people had believed that it was an audit of MPI's systems," he said.

"But in actual fact it was the start of a process of thinning down the supply chain into the China market."

Asked how contract manufactured brands would be affected by the changes, Barnett said: "In the first instance it means that they are out of the market. And for most of them that's a serious hit."

But he said the new rules did not mean all brands would be excluded in the long-term.

"What it does say is there will be some casualties and those that can afford to re-establish themselves in that market and afford to invest in technology or invest in a relationship with a manufacturer will be the ones that survive."

Guy said the new regulations applied to all countries exporting infant formula into the Chinese market and were unrelated to Fonterra's botulism false alarm last year.

Domestic baby-milk manufacturers in China also face a raft of strict new requirements as China pushes to restore consumer confidence after food safety scares including the 2008 melamine scandal, which killed six babies and affected around 300,000 more.

Marco Marinkovich, founder of infant formula exporter KiwiMilk Nutrition, said he was not concerned about the changes because he was in the process of building his own factory in Mt Wellington that was expected to be up-and-running this year.

"Moving forward, if these changes make things tighter I think it's fantastic for the New Zealand industry and fantastic for Chinese babies," Marinkovich said. "If we want to be world class we should be so far ahead of anyone else that we are the gold standard."

However, only one out of 13 manufacturing facilities currently meeting Chinese requirements for registration was not a good look for New Zealand, he added.

Guy said "most if not all" of the 13 manufacturers were expected to achieve registration.

"MPI will be working closely with the Chinese to help complete the registration process for manufacturers as quickly as possible."

Retail-ready infant formula accounted for around 4 per cent of the $5 billion of dairy products exported to China last year. Kaye said around 150 infant formula brands were being exported.