China encourages baby formula mergers

Chinese authorities on Friday released a work plan to encourage merging and corporate reorganization among domestic baby-formula producers to ensure the healthy development of the troubled dairy industry.

The quality and safety of infant-formula milk powder is a key issue concerning people's livelihood, as well as a major economic and social issue, according to the plan, released by the State Council and jointly formulated by several government organs including the National Development and Reform Commission and the China Food and Drug Administration (CFDA).

The work plan says that companies will be encouraged to reorganize through mergers and acquisitions (M&A). By 2015, China will aim to have formed around 10 large baby-formula conglomerates, each with an annual sales revenue of more than 2 billion yuan (325 million U.S. dollars).

By that time, the top 10 domestic brands of baby-formula are expected to account for a total market share of at least 65 percent.

The plan also sets a further goal of forming three to five baby-formula heavyweights with annual sales revenue exceeding 5 billion yuan each by 2018. The top 10 domestic industry players are then expected to nab more than 80 percent of the entire market.

To realize such goals, the plan stipulates several policy measures, including strict rules and regulation for industry access and production.

On the other hand, administrative approval process for M&A in the sector will be simplified. Authorities will strengthen fiscal and taxation support and financial support for relevant M&A.