The clock is ticking for Australian infant formula producers to complete a suite of new regulatory hurdles, in order to be able to keep selling their powder in China after January 1.
So far, it was announced this week, only 40 per cent of the present exporters of formula to China — from all international sources, the Australian proportion is not separately available — have filed applications for the new registrations required.
A spokesman for Australia’s Department of Agriculture and Water Resources told The Australian that the China Food and Drug Administration had not provided a specific timeframe on how long it required to assess an application for brand registration.
But he said: “We have made sure our industry is aware the process can take several months, to ensure they are prepared.”
Dairy manufacturers worldwide must first undergo an audit by the Certification and Accreditation Administration of China, which approves the business to manufacture particular products for the Chinese market, such as liquid and powdered milk.
Once registered and listed with the CNCA, any infant formula products must gain separate registration from the CFDA, effective from January 1.
The Australian Agriculture department said that “failure to get approval from CFDA by January 1 doesn’t mean companies are permanently excluded from China. They will still be able to send product to China once they receive approval.”
But such a failure would mean a hiatus during which many competitors’ products would be available instead. And formula users of course can have no hiatus, they must keep buying.
So far, eight Australian infant formula manufacturers had gained registration from the CNCA, while a further seven were awaiting the outcomes of audits by the regulator, the DAWR spokesman said.
The new requirements were issued last year, and Beijing-based research body China Policy said that at a recent meeting organised by the CFDA the authorities stressed that the grace period would not be extended.
So far, the meeting heard, 665 applications had been received by the CFDA from 75 Chinese and 26 international companies. The organisation had requested further information from 168 of the applications from 42 of the companies, both domestic and foreign.
The first batch of 89 formula products made by 22 companies — chiefly the largest in China and globally — has been announced recently. They include five foreign companies, but as yet no Australian firms. Applicants must provide such extra information within three months — a period which, from now, would mean a conclusion of the application process a perilous few weeks away from the January 1 deadline.
Liu Xuecong, the secretary-general of the China Nutrition and Health Food Association, explained that while the larger, high-volume companies had filed their applications swiftly, smaller firms without the legal experts needed to guide the complex process — especially those that sell chiefly through cross-border e-commerce channels — “have been more hesitant”.
Up to 300 small formula producers in China went out of business last year, and others are following in 2017, with even more set to follow if they are shut-out of the market for failing to gain registration by January 1.
But the DAWR spokesman was optimistic about the new registration process ultimately providing an enhanced opportunity for Australian formula manufacturers, since “they have a well-deserved reputation for producing safe, quality and highly desirable products”.
China has initiated this registration process because its consumers today have about 2000 formula brands from which to choose — resulting in a highly fragmented market and a major challenge for the Chinese regulators, which are expected to rapidly improve the quality and safety of the country’s food products.
The CFDA is thus seeking to improve control over the number of brands and formula produced by each plant, and to ensure that each formula is unique. Labelling is also to be tightened, with the country of the product’s origin to be displayed clearly.
Australia alone provides dozens of brands of formula for sale in China, many of which are made by the same factories, and some of which are not even available back in Australia.
Each formula canning plant — in China or overseas — is being limited to producing three CFDA-approved brands. This has led to intense negotiations between the smaller players, especially, and their suppliers, in order to be chosen as one of those brands.
The plants will consolidate their trade into fewer, larger accounts, mostly run by major, capable brands, and are thus unlikely to suffer as long as they ensure their registrations are completed in time. The main pressure in this process is coming on the brands.
The new rules apply to the channels that supply most of the Chinese market: conventional retail and the giant domestic online platforms.
They will not immediately affect infant formula bought via cross-border e-commerce or from daigou — proxy retail buyers in Australia who send straight to consumers — which is treated temporarily as “personal items”.
Only about 5 per cent of China’s online purchases are made via these latter routes, but they have been used disproportionately by smaller Australian formula brands.
The Chinese authorities tightened cross-border e-commerce regulations in April last year, so that this has become one of the most closely supervised routes to market.
Since daigou largely operate outside both systems, they remain a likely future target for regulators looking to close loopholes.
The prospects for Australian products that correctly negotiate the new paths to Chinese markets remain bright.
A survey of 1000 Chinese online shoppers published last week by FedEx Express found they had each spent almost $1000 each on Australian goods in the previous year. Australian dairy products were viewed as world-class by 58 per cent of those surveyed.