Aggressive marketing of 'premium' formulas driving rise in baby milk powder prices in Singapore

The AVA will be tightening its labeling and advertising requirements for infant milk powder to prohibit nutrition/health claims and idealised images. ST PHOTO: ARIFFIN JAMAR

SINGAPORE - Formula milk manufacturers have engaged in aggressive marketing tactics such as sponsorships and payments to private hospitals here to distribute their products, and built up "premium" images to entrench consumer loyalty, said the Competition Commission of Singapore (CCS) after a year-long inquiry.

Along with other factors, these have propelled formula milk prices in Singapore to among the highest in the world, along with Hong Kong and China.

The competition watchdog released a 87-page report on Wednesday amid rising public unhappiness over the price of baby formula millk.

The Straits Times reported in March that the average price of a 900g tin of formula has soared 120 per cent over the last decade to $56.06, outstripping the increases of other dairy products and household staples. On Monday, the Government announced it is tightening rules to encourage greater price competition, while stepping up public education efforts and encouraging all hospitals to support breastfeeding.

The report by the CCS - which engaged industry stakeholders between October 2015 and August 2016 - did not find that they engaged in anti-competitive practices, such as in price-fixing.

Instead, the manufacturers are able to regularly increase their prices, after convincing consumers they are paying for "premium" formulas.

They compete on building brand image such as by engaging research and development to continuously introduce new ingredients that purport to - among other things - boost mental development and vision, rather than on price.

"What consumers face... are the aggressive marketing and "premiumisation" messages driven by formula milk manufacturers, which perpetuate consumers' belief that the more expensive and the more ingredients there are in the formula milk, the higher quality it is," said the CCS report.

Experts say that such claims are not backed up. "The scientific evidence for this is weak," said the Ministry of Health, Health Promotion Board and the Agri-Food and Veterinary Authority (AVA) in a joint statement on Wednesday.

Plans are afoot to tighten regulations on labelling and advertising for formula milk for infants up to 12 months, prohibiting the use of nutrition or health claims and idealised images on tin cans. The AVA aims to complete the review of these by end of the year. After a consultation period, the industry members will be given one year of grace period to amend their labels accordingly.

The HPB will also kick off a multi-year campaign to educate parents on children's nutritional needs.

In its report, the CCS outlined the various strategies taken by the major manufacturers - Abbott, Mead Johnson Nutrition, FrieslandCampina, Nestle and Danone - to persuade parents to shell out for milk powder.

Between 2010 and 2014, the amount they spent on marketing increased 42.4 per cent.

Much of the money went to private hospitals, which receive sponsorships and "monetary contributions.

In return, they lengthen the length of time during which certain brands are offered to new parents and their babies as the default ready-to-feed formula.

Formula companies target hospitals to gain a "first-mover" advantage, given that the majority of parents who use formula milk in hospitals tend not to switch brands after leaving the hospital, said the report.

But public hospitals that offer maternity services - KK Women's and Children's Hospital, National University Hospital and Singapore General Hospital - are prohibited from entering into such arrangements with formula companies. They have a rotation system that ensures an equal duration for different manufacturers.

The CCS report added that the proportion of new-born babies who take formula in private hospitals, either exclusively or together with breast milk, range from 15 per cent to 60 per cent. "The majority of these cases are due to parents choosing to use formula milk as opposed to medical or physiological issues," it said.

In a response to The Straits Times, the MOH said it will "strongly encourage" all hospitals providing maternity services to achieve the Baby-friendly Hospital Initiative (BFHI) certification, which actively encourages and supports breastfeeding and prevents conflicts of interest by prohibiting sponsorship arrangements.

No private hospitals are currently BFHI-certified.

Besides targeting hospitals, manufacturers strengthen their "premium" images, by importing their products from Europe, Australia and New Zealand. They also often choose to bring in their "premium" formulation, despite the similarity in nutritional standards with other countries.

An estimated 95 per cent of formula milk sales in 2015 were for "premium" and specialty milk, with just five per cent for "standard" milk, which typically costs less than half the price. Many Singapore parents perceive that the more expensive products are of higher quality, the report said.

But all infant formula milk products for those aged between 0 and 12 months sold in Singapore meet safety standards and nutrient composition requirements under food regulations, said WHO.

The aggressive marketing by incumbent manufacturers coupled with existing consumer preferences have also raised barriers to entry for new players.

Retailers such as supermarkets and pharmacies are in turn keen to stock what consumers demand. They look at the manufacturers' marketing plans when making decisions on what brands to stock, which may further reinforce consumer brand loyalty.

They also prefer to obtain formula milk supply only from local authorised distributors of manufacturers, and do not consider parallel importing a viable alternative, which gives them limited ability to counter the price increases by manufacturers and/or distributors.

Based on its findings, CCS made three broad recommendations to lower barriers to entry and improve the level of price competition, particularly between manufacturers:

1) Educate consumers on the nutritional content of formula milk and the nutritional requirements of infants and young children, and improve consumer awareness of the availability of a variety of products at different price points, which will allow for more informed decisions and increased price competition over time.

2) Encourage price competition both within the same brands by reviewing parallel importation rules while still maintaining food safety and security, and between brands by exploring the introduction of retailer house brands. These will help to widen the pool of formula suppliers in Singapore.

3) Review the sponsorships and payments that formula milk manufacturers provide and their impact on the milk rotation programmes in hospitals to reduce a barrier to entry and expansion for new and existing brands.

In a joint release, MOH, HPB and AVA said that they broadly accept CCS's recommendations.

According to market research provider Euromonitor International, Nestle, Abbott, Mead Johnson Nutrition, FrieslandCampina and Danone made up more than 99 per cent of the fortified milk formula market share in Singapore in 2016, with Abbott making up nearly half of the local market.

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