The case of melanine tainted milk powder in Qinghai and Hebei offically wrapped up today with the investigation and persecution of 41 people who were involved. The case orginated from a secret stash of leftover problematic milk powder that the CEO of Hebei’s Luyuan diary company kept after a previous attempt by the food safety commission to get rid of it. He then sold it to various other manufacturers in different parts of China. Authorities are still trying to recover the rest of the product. About 104 tons of milk powder was recalled and seized by the food safety commission. Various departments are still conducting inspections on diary manufacturers, attempting to prevent substandard milk from entering the market, at the same time cracking down on offenders. 

According to an online survey  released by China Electronic Commerce Research Center, a third party non-profit organization, foreign market online transactions reached 78.2 billion yuan by the end of June 2010 and are expected to reach 110.3 billion yuan by the end of the year. The report, the “2010 Chinese e-commerce market data monitoring report", says that the most popular products are cosmetics and powdered milk, followed by bags, hats, clothing, electronics, high-end watches jewelry, food, personal sports equipment and overseas specialties.

The Ministry of Health in China recently published a draft ruling that would ban the use of food flavoring and fragrance in more than 20 of infant formula and food products leading to widespread concern in the industry, which is heavily dependent on the practice. Excess intake of certain fragrances has been found to be harmful, especially in the development of infant organs; parents also argue that the use of flavors affects children’s sense of taste and causes them to become dependent upon them. In contrast, consumers view natural milk products as the products most reliably beneficial for their baby’s growth. Currently, only five companies in China do not add any fragrance to their milk products. This includes Yili, the leading diary product company that has firmly established its image as natural and pure. With the anticipated passing of the draft ruling, the market for non-fragrant baby milk product is looking promising again. 

The CPI in China hit a new high this year at 3.3%, with floods and other factors contributing to the increase. Among the eight categories of CPI, food prices had a profound impact. Prices for agricultural products such as pork, garlic, leaf vegetables and grains increased the most. Discussion on increased interest rate has been ruled out by government officials as absurd and reports indicate that there may be hope for the CPI to decrease in later months since the increase in food price is short term. Still, authorities advise that people should stay vigilant in case of an increase.

The organic food movement is beginning to catch on in China, though people are still uncertain whether products touted as organic are properly certified and labeled and of high quality. But some reputable local firms are working hard to meet international organic certification standards and are delivering organic choices to Shanghai shoppers, sometimes straight to the buyer’s door for free. BIOfarm, for example, offers many organic foods derived from its 120 annually rotating crops. The farm delivers weekly “Farmer’s Baskets” of fresh, high quality produce, including a “singles” basket of five to seven types of fruits and vegetables. Other Chinese organic food producers include Shanghai Organic Agriculture Co., Ltd., Fields, Organic Kitchen and My Local Store. Several of these have online stores.

Chinese shoppers are turning away from catalogs and are buying more online, providing a strong growth platform for e-commerce sites in the country backed by venture capital. In the first six months of 2010, six such e-commerce companies raised over $180 million. The sites attracting venture capital include retailers and wholesalers. One of the largest deals involved Beijing-based VANCL Co., a clothing retailer, which received $50 million of financing from a number of backers. The e-commerce trend is supported by the growth in credit card ownership and usage. Online transactions increased more than 100 percent between 2008 and 2009; most were customer-to-customer transactions. The country’s top retailers are just starting to take advantage of the trend: only 3 percent of the top 1000 retailers have launched online.

After their success in China, global skincare brands now have their eyes focused on India’s skincare market, which grows 20-25% yearly. High-end vendor L’Occitane’s 51:49 joint venture deal with Kolkata-based Beauty Concepts illustrates this point. L’Occitane, however, is not alone, as Germany-based Beiersdorf, owner of the Nivea brand, aims to make China and India, along with Brazil and Russia, primary drivers of its planned sales expansion, while L’Oreal, which acquired British brand The Body Shop, is also working hard to expand its business in India. Hindustan Unilever Ltd. (HUL) controls the skincare market in India, where a fast growing middle class is flexing its purchasing strength and a growing mall culture has raised brand awareness. Local players including Dabur and Piramal Healthcare, however, are also doing their best to protect their shares of the market.

Abnormal weather is being blamed for a fall in honey production in Beijing of  50% compared with last year. The cut in honey supply has also led to a surge in the purchasing price in the country, with roughly an 80% price increase for rape flower honey, and an 100% increase for locust flower honey. Most supermarkets have not yet received price adjustment notices,  but honey manufacturers have estimated the price inflation will be around 30-40%.

The Chinese government, embarrassed by food-safety violations in the 2007 and 2008 melamine cases and determined to prevent them in the future, has implemented comprehensive changes in food inspection procedures that includes new rules and a streamlined food regulation bureaucracy. The new program seems to be working. Food inspectors in Qinghai Province in Western China recently impounded 76 tons of milk powder and other raw dairy products and finished goods tainted with as much as 559 times the legal levels of the toxic industrial chemical melamine. The confiscated products had somehow avoided a national recall of dairy foods after the 2008 debacle. Melamine is added to food products because it mimics protein in food quality tests, making foods then seem more nutritious.

At its recent earnings call, General Mills said it expects international expansion will drive sales to $18 billion by 2015, from $14.8 billion for the fiscal ended May 2010. Its international unit has been growing faster than the rest of the business for the past five years and should post sales of over $3.7 billion in five years time, from $2.7 billion in 2010. It expects China to generate $900 million of sales by 2015, from $350 million in 2010. General Mills has ring-fenced $10 million in this fiscal year to help it gain a stronger presence overseas and is “actively working” to identify expansion opportunities in emerging markets, and especially the BRIC countries. It aims to grow scale and category scope through acquisitions in the growth markets to help offset the expected continued weakness in Western Europe.

A February 5, 2010 ruling by the State Food and Drug Administration made subject to Cosmetic Health Supervision cosmetics (“skin care, beauty and grooming products”) that are “rubbed, sprayed or applied by similar methods to any part of the body surface to clean and remove odors”.  There was some confusion as to whether these rulings applied to oral care products, but after consulting with the National Food and Drug Administration, the China Oral Care Products Industry Association issued a statement confirming that toothpaste products are exempt (see Ministry of Health Buiietin No. 14 of 2004).

H.J. Heinz Company is planning to acquire Foodstar, a leading soy sauce and fermented bean curd maker in China. The acquisition is an effort to penetrate the country’s retail soy sauce market which is estimated at $2 billion and growing at 7% to 8% annually. Heinz says the acquisition would boost its annual sales in China to $300 million. Foodstar has a strong presence in southern China where its Master Weijixian brand is the top brand of Weijixian soy sauce. The company also has 2,500 employees and four manufacturing plants with a new facility under construction in Shanghai. Heinz said the acquisition is vital in strengthening its growth in emerging markets like China. Emerging markets, China included, generated about 15% of Heinz’s total sales for fiscal year ending April 2010. Heinz expects emerging markets to contribute 25 percent of sales by 2016.

Researchers from China’s Inner Mongolian University were able to create a genetically modified cow that they hope will produce milk that is rich in omega-3. This is the world’s first genetically modified cow that has this trait and it is one of two genetically modified cows but it is the only one with this trait. Chief researcher Dr. Guang-Peng Li said the cow is still too young to produce milk but they analyzed an ear tissue sample and found the cow’s omega 3 fatty acid level to be 10 times more than in normal cows. Dr. Li’s long term goal for his transgenic cattle research is to get several fat-1 cattle that express high levels of omega-3 in order to produce cattle products that are healthy for humans.

The USDA, which contracts with private organizations to inspect and certify organic foods worldwide, has disqualified a private American inspector in China because of conflict of interest issues. The agency said it will send an audit team to China to take a close look at the certification process there. The problem with the disqualified inspector, the Organic Crop Improvement Association, is that it hired employees of a government agency to check state-controlled farms and food processing facilities. The OCIA earlier this year shut down most of its operations. Consumers and organic food retailers have long suspected there were problems with purportedly organic foods imported from China. Whole Foods Market will soon stock only two private label organic items from China, down from 30 two years ago.

After making amendments to the Food Labeling Regulations in China, the National Department of Quality Inspection said food safety laws are its foremost concern, stressing that new regulations will be in effect as of June 1st. The newly revised regulations include new requirements such as producer contact information, relevant storage information, and nutritional value information. Foods processed before the 1st of June can continue to use the original packaging, although producers are advised that they may also wish to attach supplementary information to satisfy the requirement. The National Department of Quality Inspection says that violators will be punished according to law.

Beiersdorf’s luxury cosmetics maker, La Prairie, hopes to return to pre-crisis double digit growth by 2012 as the US and Chinese markets start to pick up. In 2009, La Prairie’s sales dropped by 8 percent to 375 million Swiss franc ($324.4 million), compared to the period 2005-2008 when it was growing twice as fast at the luxury cosmetics market that was growing at 7 to 8 percent annually. La Prairie, which is popular for its anti-aging products, some of which can run to $1,000, said it is counting on the US as well as emerging markets to drive future growth. Both markets contribute about 20 percent each to La Prairie’s annual sales with the bulk of its business coming from Europe, but over time this will change as Asian markets grow faster: the head of Shiseido, for instance, expects the high-end cosmetics market in China to grow up to 20 percent a year in the near term.

Australian company Murray Gouldburn, the world’s second largest diary manufacturer and also the main supplier of many of China’s raw diary materials, launched a charitable event in Beijing while at the same time announcing the investment of 90 million dollars in its plants in Qingdao, China. The money will be used for the construction of a second factory in Qingdao, the company also plans to enter large markets in Beijing and Shanghai beginning in the second half of this year. 

Carrefour is looking to buy the leading China-based retailer Hebei Bao Longcang. The two companies are in talks to finalize what will be Carrefour’s first acquisition since it entered the Chinese market. Carrefour Chief Executive Officer Lars Olofsson was previously quoted as saying that the company will hasten growth in China. Hebei Bao Longcang was founded in 1998 and operates 14 stores in seven cities in the provinces of Hebei and Shandong. It reached RMB 3.16 billion in revenues last year. Industry data showed growth of Carrefour’s same store sales in China grew 4.5% year-on-year from January to March this year. In 2009, Carrefour sales in China rose 16% from a year ago.

China’s fast-growing economy has spawned increased prosperity and a major problem with obesity and associated health conditions such as type 2 diabetes, thanks to more sedentary lifestyles and diets containing more meat and processed food. The obesity problem in turn has created numerous new business opportunities for entrepreneurs and big companies with products or services to help the Chinese fight fat. Sales of soy and fruit bars are soaring. Weight Watchers China has opened a center in Shanghai and plans more there and in other cities. Fitness companies like Bally are launching gyms and health clubs, adding to the 3,000 currently in existence. And that means fitness equipment suppliers are thriving as well.

Retail giant Wal-Mart will build new stores in China within the year to further strengthen its hold in the local market. Wal-Mart Asia Chief Executive Officer Scott Price, who was attending the Global Summit of Women 2010 in Beijing, was quoted as saying that the company is planning to add 10 million square feet to its existing store space in China. Calling it a “huge expansion," Price said the American retailer currently operates around 200 stores in 87 Chinese cities. The company also said it plans to cut energy and resource consumption by 40 percent in 2010 from 2005.

German retailer Metro is joining the ranks of global retailers in China as it announced the opening this year of the first Media Markt consumer electronics store in Shanghai and the expansion of the Cash & Carry chain. Eckhard Cordes, Metro chief executive, said Metro would be increasing its presence in China this year after lying low on its investments last year. Frans Muller, head of Metro Cash & Carry for Asia and new markets, said Media Markt would open its flagship store on Huai Hai road this year. There are plans to open 10 stores in Shanghai by 2010 and at least 100 more if everything goes well. Cash & Carry, on the other hand, hopes to increase its stores from 44 to 50 by the end of the year and then build smaller stores in central Shanghai.

Japanese cosmetics giant Shiseido will take over operations of its Hong Kong-based distributor Dah Chong Hong Cosmetics (SDC) to strengthen its foothold in the Chinese cosmetics market. SDC distributes Shiseido products in Hong Kong, Macau and mainland China. The acquisition is part of Shiseido’s three-year plan to become a top player in the global cosmetics industry. Shiseido said it’s eyeing stronger sales in China, which it considers a significant global cosmetics market.

With increasing health and wellness awareness, China should become the world’s top consumer of nutrional supplements in 2010. China’s sales of nutrional supplements more than doubled from US$5.6 billion in 2006 to US$13.4 billion in 2009, making it the second largest purchaser in the world after the United States (US$16.1 billion in 2009). This rapid growth has come with changes in industry structure. In previous years, sales companies played the role of a middleman between pharmacists and supplement manufacturers. However this role is no longer needed because of increasing competition and the rise of pharmacy chains that have better marketing capabilities; instead, suppliers can now sell direct to pharmacy chains. Notably, health products and supplements have replaced drugs as the most profitable category for drug stores.

The market for dietary supplements for women’s health in China is a huge one, especially for products that target aging, skincare, weight loss, detox, prenatal care and blood enrichment. Chinese women have always had their homegrown, and affordable, health remedies, like “bird’s nest” and donkey hide gelatin, a fact that has so far made the market almost impenetrable for Western companies. On top of that are other barriers: government regulations, lack of consumer awareness, and resistance to prices boosted by shipping costs, taxes and import fees. But importers have reason to be optimistic. Especially encouraging is the fact that China’s version of the FDA is drafting new rules designed to nurture the industry and expand consumer education about Western nutritional and other supplements.

The People’s Republic of China has approved omega-3 fish oil and fish oil powder as “novel food ingredients” for use in any food and beverage category for consumers of all ages. Chinese food companies already include omega-3 DHA in many infant formulas and children’s foods. The approval by the Chinese government acknowledges that long-chain omega-3 fatty acids are necessary “good” fats that deliver health benefits that may be missing in the typical Chinese consumer’s diet, according to Ocean Nutrition Canada Limited (ONC), a supplier of omega-3 EPA/DHA food and dietary supplement ingredients. The company said the Chinese market “will quickly follow the lead of both North America and Europe, where omega-3 fortified food and beverage new product launches are showing excellent growth.”

As the economies of China and India continue to grow rapidly, multinationals are forced to navigate a variety of market challenges and government regulatory obstacles. Key problem: complex partnership rules bar controlling ownership of certain entities by foreign companies. So firms seeking to extend and deepen commercial relationships with the two economic giants must find ways to operate joint ventures profitably and maintain adequate strategic control. Drawing from examples of past JVs gone sour, this article tells how to structure and manage partnerships in China and India: separate JV operations into different components, each with a different partner; make sure partners agree with your strategic goals; retain the power to name key managers and to view operational info; and secure control of the “ecosystem:” companies that supply with parts or services.

China's first research center for sensitive teeth, LengsuanLing sensitive teeth research center, was recently established in Chongqing. The center was formed by Chongqing Naruyasu oral care Inc. in conjunction with the Chinese Stomatological Association and the China Oral Care Products Industry Association. It has three subdivisions: the Technical Advisory Committee, Technical Evaluation Committee, and the R&D center. The center will address the needs of people with sensitive teeth. Roughly one in three Chinese people reportedly suffer from hypersensitivy, an incidence that can reach 40% in the elderly. Naruyasu, which claims to be a national leader in the Chinese toothpaste industry, aims to build a world-class R&D center that will allow it to consolidate its position in China but also compete in other markets. 

China, which produces 31 percent of the world’s rice and 20 percent of the corn, has approved home-grown, genetically modified strains of the two staples that will yield pest- and herbicide-resistant crops to boost food supplies. The country had only approved GMO cotton for large-scale production, according to this Bloomberg report, but potential water and farmland shortages are forcing a re-evaluation of policy. According to a market researcher, trial planting, marketing and public acceptance of the crops are necessary before mass-production and commercialization take place. Nevertheless, the Chinese agricultural ministry called it “an important achievement for domestically researched GMO technology.”

The cosmetics market in China is projected to grow 12.5 percent annually through 2012, a fact not lost on Elizabeth Arden Inc., which has already captured one percent of the market. The company has makeup and skin-care counters in 77 cities, including all of the country’s biggest and a sizable number in the second-tier. Execs say they’re not worried about lower-priced competition or a cultural distrust of synthetic ingredients. But the company is adjusting its marketing strategy for Chinese consumers, according to this report: focusing on skincare products, establishing “first-touch” counters, and offering skin whitening and anti-aging products.

German grocery wholesaler METRO Cash & Carry continues to successfully expand in China, adding four new business-to-business stores this year in two provinces for a total of 42 nationwide. The outlets serve the needs of hotels, restaurants, caterers, other companies and institutions, and small- and medium-sized retailers. China is a lucrative market, ripe for expansion, according to this China Daily report, with METRO already experiencing 15 percent annual growth in turnover. Hoping to further entrench itself in the region, METRO plans to launch five new brands exclusively in the Chinese market.

British supermarket group Tesco is opening a supermarket mall in Qingdao, China in December 2009. This will be the largest such development in the city, with an area of 820,000 square feet. The complex will have seven floors and parking space for 600 vehicles. Other tenants include KFC and Pizza Hut. Tesco entered the Chinese market in 2004 and now operates 65 supermarkets and six convenience stores in 29 Chinese cities.

Coca-Cola executives were disappointed when the Chinese government put an end to its $2.4 billion quest to acquire China’s top juice manufacturer Huiyuan Juice. But that didn’t dim its enthusiasm for the giant marketplace. A company exec said Coca-Cola regrets the government’s decision, and is “reassessing” its options. “Yes,” a company exec said, “we now have to compete with them." Among the options: launching one of its own juice drink brands, such as Simply Orange or Cappy, to compete against Huiyuan. Or marketing a pure juice product.

Online advertising is taking off in China as marketers look for ways to boost the profile of brands and products in a tight economy. China has more than 300 million internet users, 100 million of them online gamers. Online advertising revenue reached $2.5 billion in the past year, according to an iResearch Inc report in February. Companies such as Coca-Cola, Unilever, Intel and Nike are increasingly associating their products with online games, and taking advantage of new websites that encourage interaction between consumers and producers.

More than four million law-enforcement officials have found no further cases of melamine-contaminated milk in China in the last four months, says the Chinese Health Ministry. But they have uncovered more than 7,620 cases of illegally used food additives, arrested 30 suspects, closed 3,309 unlicensed food makers and revoked 87 business licenses of makers using illegal food additives, said Su Zhi, deputy director with the ministry's food safety coordination and supervision bureau. The inspectors seized 68 tonnes of illegal food additives and 116.3 tonnes of excessively used food additives during the campaign, initiated when thousands of Chinese children became ill after being fed milk contaminated with melamine. Officials are about to publish a third “blacklist” of forbidden chemicals, based on new substances found by the inspectors after tip-offs from public informants.

Japanese cosmetics and beauty specialist Shiseido plans to open 700 new outlets in China this year, bringing the total to 4,000. The Maquillage brand will also be promoted this year. The company plans to increase sales by more than 20 percent in 2010 to $100 million and the number of customers to 5 million. China's cosmetics market is estimated to be worth about $900 million, with L'Oreal the biggest seller.

Carrefour China is promoting “outstanding” senior executives and shuffling them around the country. The move will not affect the company’s Chinese investment strategy, according to Chen Bo, Carrefour China's director for public relations. Carrefour’s China operation outperformed the rest of the world in the first quarter of 2009, according to the company's latest financial report. Chinese revenue rose 3.1 percent, compared with a 2.8 percent drop overall. Among the moves announced by Carrefour: East China president Patrick Ganaye moves to Taiwan; South China president Pierre Bertholat takes over in East China; Carrefour financial director Stephane Deutsch becomes president for South China; and Carrefour China's director for development Patrice Moulin replaces Deutsch.

China's consumers are shunning Johnson and Johnson following allegations in the US of formaldehyde and dioxane in the company's baby bath products. A poll by advertising and media group ifeng.com showed that three-quarters of respondents said they had stopped buying J&J. According to Euromonitor, J&J accounted for almost 70 percent of baby care products sales in 2008 in China, dwarfing its nearest rival, the Chinese company Tianjin Yumeijing, which had 8 percent. The baby care products market is forecast to be worth $450 million in 2009, according to Euromonitor. Chinese parents spend around 30 percent of household income on their children up to the age of 14.

Wal-Mart in China has backed down on a plan to lay off 2000 middle management employees, after the Shenzhen trade union federation stepped in. Instead, the company will pay $450 to each employee who agrees to be transferred or receive training for new jobs. Some employees say it will take time to rebuild trust. The consumer chain store has 147 outlets in China and 50,000 employees.

Coca-Cola's £1.7bn bid to acquire Huiyan, the largest pure juice brand in China, has been halted by the country's new anti-monopoly laws brought in to meet nationalist demands. Coca-Cola has over half of the Chinese fizzy drinks market but just 10% of the fruit and vegetable juice sector. The European Chamber of Commerce in China is seeking an explanation for the deal being blocked.

Lallemand SAS and Biostime Inc have extended the partnership they formed in 2000 with a new joint venture to market probiotics in China. Biostime France is based in Blagnac (France) and equally owned by French probiotics maker Lallemand SAS and Chinese marketer and distributor Biostime Inc. Lallemand specializes in research, development and production, while Biostime distributes to 15,000 outlets in China. The two companies launched “Biostime Probiotic Sachet for Children” in China after it was registered there in 2002. Sales have grown 20 percent a year since then, and are expected to reach 100 million sachets in the near future. The companies now plan to market adult and senior products.

China’s melamine scare is making the industry realize that food safety measures and precautions in foreign joint ventures have to be as thorough as in Europe. If an investment stake is too small, there might not be enough leverage to take action. In China, a joint venture is a legal entity, and has to operate under Chinese rules. International companies need to think very carefully about whether they trust the local structures. Danone ran into problems with Wahahah while Remy Martin, Fosters and Peugeot all regretted their joint ventures.

China has allowed Cargill to sell Zerose erythritol sweetener with no restrictions on its applications. Erythritol sales in China rose to more than 320 tons in 2007, according to Euromonitor, and are forecast to rise to at least 635 tons in 2012. Zerose is non-glycemic and non-insulinemic.

Coca Cola has invested $80 million in the Academy of Chinese Medical Sciences in Beijing, initially to develop drinks incorporating Chinese herbs and formulas. The academy is affiliated to the Ministry of Public Health, and Coca Cola is the first foreign company to be allowed to use the institute. China is the company’s fourth biggest market, with sales doubling since 2002 and accounting for five percent of global sales.