Milk Smugglers Top Heroin Courier Arrests in Hong Kong

For border officials in Hong Kong, baby formula trumps heroin.

Since the former British colony on March 1 restricted outbound travelers to two 2-pound cans each, a syndicate has been cracked and more people have been arrested for smuggling milk powder than were detained all of last year for carrying heroin.

The reason? Mainland Chinese demand, fueled by distrust of locally made food after product-safety scandals that included the deaths of at least six babies because of tainted milk. Britain and New Zealand are among countries with limits on milk sales as bulk purchases of brands such as Danone’s Aptamil and Mead Johnson Nutrition’s Enfamil caused local shortages.

“Most of them only have one child, and the child is the most important thing in their life,” James Roy, a Shanghai-based analyst China Market Research Group, said of Chinese parents, most of whom are subject to the government’s one-child policy. “They want to be extra careful.”

The crackdown on milk buyers gives Danone, Nestle and Mead Johnson an opportunity to increase their market share in China at the expense of domestic rivals such as China Mengniu Dairy and Inner Mongolia Yili Industrial Group.

Sales of baby formula in China grew 29 percent to $15.4 billion last year, more than four times the size of the U.S. market, according to industry analyst Mintel Group. Milk powder retails at higher prices in mainland China, which excludes Hong Kong, Macau and Taiwan.

The country’s top five international sellers of formula — Danone, Nestle, Mead Johnson, Abbott Laboratories and Wyeth — will increase their market share by 5 percentage points this year to about 55 percent, China Market Research estimates.

Foreign formula brands are treated as luxury goods because of distrust for the local supply chain, said Stuart Roper, a professor at Manchester Business School.

“Baby milk scandals in China happened because of corruption, because regulation was very lax,” Roper said. “Until things change in China, and they’re not going to change overnight, only then will the consumer be able to feel assured.”

In 2008, at least 22 companies were found to have sold dairy products containing melamine, a toxic chemical that can make diluted milk appear to have a higher protein content. In 2011, Mengniu, China’s largest producer, said moldy cattle feed led to excessive toxin levels in its milk.

“Food safety in China is a big worry for me,” said Helen Li, 30, who gives her 1-year-old son Danone’s Aptamil formula from Germany bought on the Internet or by traveling friends. “I feel more secure buying German products, more secure about their ingredients.”

New Zealand in September said it would limit “unlawful exports” of milk powder, with fines of as much as $42,700. Supermarkets in Britain and Germany have also imposed restrictions.

Liu Ying, 33, who lives in Germany, runs the online shop “Mama Little P” on the Chinese e-commerce portal Taobao.com, selling infant milk brands Aptamil and HIPP.

“It’s become very difficult to buy infant formula at the stores since last November,” Liu said by phone from a town outside Hanover, where she lives with her husband and 2- year-old son. Some shops limit her to one can or ask to see her baby, so she drives to several stores a day, she said. She has stopped taking orders, except from close friends and relatives, Liu said.

Other online merchants on Taobao have raised prices and the waiting period for overseas formula can be almost two months, said Li, the mother who buys German milk.

Six baby formula brands, including Karicare and others from Danone and Nestle, will be sold on Tmall, its operator, Alibaba Group Holding, said in an e-mail.

“It’s difficult to see any sign for weakening of the demand, at least in the short term,” Danone Chief Financial Officer Pierre-Andre Terisse said on a conference call with analysts last week. Danone doesn’t plan to significantly increase imports from Europe and will broaden the product selection available in China, he said.

China had 81.6 million children under the age of 5, Unicef estimated in a December 2011 report. That’s more than the population of France.

Many Chinese visit Hong Kong regularly to purchase items such as soap, cosmetics, milk and diapers because of lower prices and the concerns about quality at home. While Britain returned the city to China in 1997, Hong Kong retains a separate legal system and has autonomy over issues including public security and food standards.

In Hong Kong, the milk-powder crackdown is keeping police and customs officers busy. Officials on April 8 said they had busted a syndicate that had more than 8,800 pounds of baby formula worth about $141,700.

As of Tuesday, 879 people have been arrested, with nearly 19,500 pounds of powdered milk seized, Calvin Lee, a press officer, said in an e-mail. Last year, 420 people were arrested by border officials for having restricted drugs. Of those, 81 had heroin, 81 carried cocaine and 161 had ketamine.

“All these scandals that have happened are never good for any industry,” said Heiko Schipper, managing director of Nestle’s Greater China food and beverage division. “I can understand the reaction. It may be a bit of an overreaction, but when you talk about the health of your baby, it’s very hard to say to people, ‘You are overreacting.’ ”

 
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