Facts about the dairy market

The government has issued fines of 670 million yuan ($109 million) to six foreign dairy companies for price fixing. An editorial in Beijing News asked if that will truly benefit consumers (excerpts below).

The National Development and Reform Commission issued its largest price-fixing fine on Wednesday, with Biostime and five other foreign dairy products companies face fines totaling 670 million yuan.

The unprecedented fine might teach them a lesson. However, a deeper glance at the market will find that the biggest of these foreign brands has 15 percent of the market in China, and the smallest less than 5 percent. Theoretically, in such a structure, none of the producers could control the price.

A main cause of the high price of foreign brand dairy products is that Chinese consumers do not trust domestic brands for fear of harmful ingredients, so foreign brands have no domestic competitor and can raise prices without worrying about losing market share. As long as the lack of trust continues, the market will still be controlled by foreign brands.

Under such conditions, it is possible that the involved companies might shift the loss to consumers, and even make a bigger profit by further raising prices. Of course, to avoid the suspicion of controlling prices, they could raise prices by developing products with new ingredients.

Therefore, the fine alone cannot break the monopoly of foreign brands in China's dairy market. Of course, supervising departments should perform their duties, but more importantly, domestic dairy enterprises need to raise the quality of their products and win back the trust of consumers. That is the only way of avoiding monopolies and control over prices.