SHANGHAI/LONDON (REUTERS) - Chinese infant formula giant Beingmate prints Irish clovers on its flagship product as it seeks to assure Chinese parents of its European sourcing after a safety scare involving the world's biggest milk powder exporter New Zealand.
Until last year, formula sourced from New Zealand was seen as the gold standard for quality in a country where food scandals are common and the death of at least six babies from locally made milk powder in 2008 preys on parents' minds.
This reputation, however, was tarnished after New Zealand dairy conglomerate Fonterra said some of its products could have been tainted by bacteria. Though the scare turned out to be false, it prompted formula firms to reduce supplies from New Zealand and this year to trumpet Europe as their source.
"Sentiment, for now, has swung from New Zealand towards Europe," said a China-based executive at a large multinational infant formula firm who declined to be named because he is not authorised to speak to the media. He said that adding a "Europe" tag now gave products added cachet for consumers.
Giving Chinese consumers what they want will help global and local firms expand in the world's largest market for infant formula, where sales are expected to double from last year to $31 billion (S$40.56 billion) in 2017, consultants Euromonitor say.
Milk formula is also a gateway into China's wider dairy market, estimated to become the world's biggest by 2017.
European companies like Glanbia Plc in Ireland, Denmark's Arla Foods and Dutch dairy FrieslandCampina have lined themselves up to capitalise on this growth, especially as European Union caps on milk production will end next year, freeing up more capacity for export.
"Our history and our roots, and that all our products come from north Europe, is what we try to convey to the consumer,"Frede Juulsen, senior vice president of Arla Foods, said by telephone.
The proportion of infant formula imports from New Zealand halved to 9 per cent in the first nine months of this year compared to the same 2012 period, Chinese industry data shows. Fonterra accounts for the bulk of New Zealand's dairy exports.
A Shanghai-based spokesman for Fonterra said China's infant formula market had always been competitive. "We are a large-scale supplier of ingredients in this category and we have seen continued strong demand from our ingredients customers,"the spokesman added.
New Zealand remains China's biggest source for base milk powder, the raw ingredient used to make dairy products including formula, but Europe, Australia and the United States are gaining ground.
Several Chinese parents told Reuters they now buy formula sourced from the United States or Europe instead of New Zealand.
"After the Fonterra issue, I took all the brands affected by the scare off the list," said Xu Yong, 28, a civil servant who now buys Dutch-sourced formula for his six-month-old baby. "I choose based on safety concerns."
Global and Chinese infant formula firms have taken note.
On their products and websites, Mead Johnson Nutrition Co , Nestle SA and Chinese formula firms Beingmate Baby & Child Food Co Ltd and Biostime International Holdings Ltd play up their European links.
A prominent banner on the China online store for Danone SA's Dumex formula brand reads "100 percent imported from Europe".
Sales of the brand plummetted in China after the Fonterra scare last year, leading Danone to say it was suing the New Zealand firm and that it would no longer buy its products.
Abbott Laboratories, which recalled products in China over the Fonterra scare, also says on its China website that it sources its formula from Spain, Denmark and Ireland. There is no obvious mention of New Zealand.
Both Abbott and Danone declined to comment for this story.
A Nestle spokesman said the company imported formula from Europe due to the "current consumer preference in China" but that it sourced and produced the majority of its formula sold in China locally. A Mead Johnson spokesman said the company relied on a range of sources.
Beingmate, which is exploring a joint venture with Fonterra, said its premium product Green Love+ was sourced and produced in Ireland and that many of its mid- and high-end products were sourced from Europe.
"The proportion of European milk powder we source may change," said a Beingmate spokeswoman. "It all depends on what the market wants."
Rival Chinese formula maker Biostime imports all its products from Denmark and France because of the strict safety standards in Europe, said spokesman Zhu Hui.
"European dairy production is enough for us to ensure future supplies, especially with EU quotas set to be lifted," he said.