Australian formula is much cheaper than the Chinese product. Chinese moms also trust it more. As a result, 27 percent of Chinese say they've purchased baby formula online, according to a Nielsen report.
Half of Australia's formula sold at retail goes to China through consumer-to-consumer channels, the Sydney Morning Herald revealed last year, with Chinese demand for the product accounting for more than $200 million in sales in 2015.
Not everyone is pleased about that. Some Australians are unhappy that their supermarkets' shelves are being emptied for what some call "smuggling" purposes, and the Chinese government says it is being deprived of tax revenue on the product.
But analysts don't expect either recently imposed Chinese tariffs or a backlash among Australian consumers to stop the daigou or diminish the Chinese public's demand for foreign goods.
“Chinese people have more money to spend, and they are really scared of the safety of Chinese products,” said Tim Foulds, head of research at Euromonitor Australia and New Zealand. “This is particularly apparent when you’re trying to care for your baby.”
Chinese consumers' concerns about domestic baby formula dates to 2008, when a number of Chinese dairy companies were found to be selling formula contaminated with toxic melamine. Some 300,000 babies were sickened, with 54,000 hospitalized. Six died.
The scandal was one of the worst in a line of scares: 100 tons of retail oil recycled from restaurant gutters seized in 2011; 850 children poisoned by pollution from a lead plant in provincial China; and most recently, a Beijing elementary school's running track found to have used toxic waste in June.
Among the responses of the country's growing middle class has been the turn to foreign goods — especially those from Australia and New Zealand, whose producers emphasize purity, health and the quality of their farms, as in this commercial by the a2 Milk Co.:
The importance of that trust issue is reflected in Lydia's Taobao account. Her profile describes how she came to Brisbane, Australia, as a student in 2010 and opened her account with the website in 2013, managing the business with her boyfriend. A collage of Aussie amusement parks, beaches and skylines also shows images of shipping and packing and shopping aisles in Woolworth's.
Every posting for a shipment of baby formula includes documentation of the shopping trip: photos of Lydia holding formula cans; the formula being scanned by an unsuspecting grocery store employee; and, most important, the receipts. That provides definitive proof that the formula the Chinese consumer is buying was indeed purchased at a trustworthy Aussie chain. The profile emphasizes that each shipment comes with one.
“In Australia, when we buy something like baby formula, we take for granted that what we’re buying is what the product is going to be, but in China, all the trust is gone,” Ben Sun of Think China, a Sydney-based marketing agency, told news.com.au in January.
Some Taobao users are even more thorough than Lydia. It’s common for daigou to include photos of their credit cards, Australian passports, Costco memberships, Woolworths reward cards and even firearms licenses. Sellers will upload tax invoices followed by dozens of pictures of themselves surrounded by boxes full of baby formula ready to be shipped to China. Then come baby formula advertisements in Chinese, dotted with images of cows roaming Australian pastures and plump white babies.
Qian, a Taobao Gold Medal Seller, takes it even further: She promises each customer a video showing her shopping for the formula.
Infant-formula daigou can earn an entire income off the practice — and at least some serious cash. Experts call it a gray market. “It’s not illegal,” Foulds said. “People are buying these products legally on the Australian market, they’re paying taxes on it, so it's just like anyone else buying them. They’re not illegally being exported to China, although the Chinese government has tightened the actions around that.”
The practice is also represents valuable profits for distributors and manufacturers, Milk Powder Australia chief executive Simon Hansford told news.co.au in September. Hansford's company has "specialized in the manufacturing of infant formula for the discerning Chinese market" since 2009, according to its website.
Infant formula sales at Australian supermarkets have nearly doubled since 2012, which experts attribute to the rise in daigou activity.
“Companies like [baby-food makers] Bellamy’s, a2, Swisse and Blackmores are absolutely cleaning up," Hansford told news.co.au. "All the stuff going off the shelves in Woolies and Coles is going straight overseas.”
The daigou trade is "happening everywhere at the moment," Hansford added. "It’s a real movement.”
But many are angry. In Australia, Foulds said, the “tabloid media” have expressed outrage at the trend. Parents have described the frustration of empty shelves, with some telling news.co.au in January that they might go to four different outlets before finding formula.
Stores have imposed rationing — restricting purchases to from two to eight per customer — but the limits have not been enforced nationwide. A Woolworth’s executive told Australia’s Fairfax Media in December that the company had given up enforcement, saying: "Sales are worth way too much for us. . . . We know more than half the sales are gray market and turn a blind eye."
The Chinese government, meanwhile, has been trying to crack down on the practice for years, most recently in April, when a tariff of 11.9 percent was placed on products sold on websites and shipped from overseas to China.
As for daigou who choose to lug baby formula back home in person, it’s becoming customary for them to declare how much they're bringing in — or else face a fine.
Along with its perceived purity, formula is far cheaper in Australia. A Euromonitor analysis shows that formula is more than twice as expensive in China for a typical can weighing around 1.8 pounds. Australian formula costs just under $20 in Australia, while the same brands average $48 in China. Even domestic Chinese brands cost $46.
Sales of baby formula have grown in China by double digits since at least 2001, according to Euromonitor. That contrasts with the trend in Western countries, where mothers increasingly prefer breast-feeding.