Wednesday, 3rd July, 2013

A united approach to marketing formula in China can only enhance the Kiwi reputation, writes Michael Barnett.

The discovery at a Shanghai Mother and Baby Expo last year that some of the infant formula brands on display might not be from New Zealand even though they were packaged to look as if they were has deservedly propelled a fast response.

The New Zealand exporters at the Expo reasoned that if they could not tell who was offering a legitimate Kiwi product, how possibly could China consumers. Their concern was that other (non-Kiwi) formula producers might be leveraging off the good name of the New Zealand clean, green brand.

Concerned that the use of the Kiwi clean, green brand might not be as it seems triggered them to establish the New Zealand Infant Formula Exporters Association (NZIFEA).

Their quick action to establish NZIFEA is understandable.

First, infant formula is New Zealand's latest export superstar. China's 2008 melamine scandal - in which six babies died and around 300,000 became sick after consuming dairy products tainted with the industrial chemical - resulted in the virtual collapse of the Chinese infant formula industry as consumer confidence in domestic brands hit rock-bottom.

Foreign brands quickly filled the void and New Zealand-made formula products now command a hefty premium, selling for as much as $70 a can. In 2009 formula exports were worth $753 million to the New Zealand economy, up from $63 million in 1999.

Recent commentary suggests formula exports income may now be around $1 billion, helped by the phase-out of tariffs agreed under the 2008 NZ-China Free Trade Agreement.

Multimillion-dollar processing plants (some partly or wholly Chinese-owned) are springing up in New Zealand to manufacture formula for China's rapidly expanding market - worth around $7 billion in 2011 and projected to double by 2016.

Second, the reputation and use of the New Zealand brand in China is at stake.

Now made up of some 20 medium and small exporters, together with businesses involved in product testing, packaging and the supply chain, the main purpose of the association is to secure and protect the reputation of New Zealand infant formula, the Kiwi brand and consumer confidence.

Another objective is to develop and maintain an accreditation process to help improve the overall quality of New Zealand infant formula. The association is encouraging all exporters to comply with the World Health Organisation's International Code of Marketing of Breastmilk Substitutes (WHO Code).

Reflecting the high importance and potential of the China market but recognising its relatively complex regulatory frameworks, the association has quickly become a sounding board to share experiences, concerns and work collaboratively.

The potential of the market is so huge there is no point in New Zealand exporters pretending that they are competing against each other.

Their real competition threats come from other foreign infant formula producers that might send bulk product to China which is then repackaged locally to look as if it comes from somewhere like New Zealand.

It is reassuring that China's Government has become aware of this possibility and has recently said it will step up monitoring of baby milk brands so products can be traced back to their source.

At the same time, China is a relatively new market and the rules are still being shaped. There are indications, understandably, that China's authorities don't want to be seen to be failing their public on an issue where the public has expressed a great deal of concern.

The association wants to learn how best to build a relationship with Chinese authorities and use this to respond appropriately on behalf of members.

China's Government likes to deal with a single, coherent authority. Though the association doesn't claim to represent all of the New Zealand infant formula exporters, it has quickly become a credible voice for medium-small businesses who want to build a positive relationship with China and do things correctly.

In other areas, China and New Zealand have, over a long time, established a strong reputation of working together to ensure the integrity of traded products. Export assurances are especially important for infant formula exports given, as noted, that China's consumers have strong concerns about food safety, quality and product integrity.

By members adopting shared "best practice" on environmental issues, the WHO Code and infant formula marketing, they reinforce through their behaviour that New Zealand's brand is valuable. This needs to be applied in a consistent way.

I note that Food Safety Minister Nikki Kaye intends to work closely with the industry to further protect and strengthen confidence in our food assurance systems to match the rapid growth in infant formula exports. The association's members can only benefit from this initiative, and we look forward to participating in the work programme that has been proposed.

Association members agree New Zealand's global reputation as a leading producer of safe and trusted food is extremely important to our competitive advantage as an export-led nation.

For more information contact Michael Barnett, mobile: 0275 631 150.
Michael Barnett is chief executive of the Auckland Chamber of Commerce and independent chairman of the New Zealand Infant Formula Exporters Association.