China moves further towards milk powder sector consolidation: paper

An Abbott Laboratories sales staff carries a carton of powder milk tins out of a shop during a production recall outside Hanoi August 6, 2013.

Credit: Reuters/Kham

SHANGHAI | Fri Aug 16, 2013 2:52am EDT

SHANGHAI (Reuters) - The Chinese government is set to issue a formal proposal to prompt consolidation among domestic infant formula firms, a state-run newspaper said on Friday, naming Inner Mongolia Yili Industrial Group (600887.SS) as one of the likely beneficiaries.

The proposal is part of the government's drive to slash the number of domestic infant formula manufacturers over the next five years to 50 from about 200 now, the China Securities Journal said, citing an unnamed source.

By 2018, China expects the top 10 local companies to account for 80 percent of the domestic market, with the largest three-to-five firms targeting annual sales of over five billion yuan ($818.00 million), the report said.

The newspaper said Feihe International (ADY.BE) and Wondersun Dairy were also likely to gain from the consolidation plan, but gave no further details.

Analysts said the consolidation drive is part of a broader plan to boost consumption of local product and allay fears about food safety following a 2008 scandal, when formula tainted with melamine killed at least six infants and made thousands ill.

Last week, the country's price regulator also handed down record fines to foreign milk powder makers, including Mead Johnson, (MJN.N), Danone (DANO.PA) and New Zealand dairy giant Fonterra (FSF.NZ), for anti-trust behavior.

"The government sees a lot of room for consolidation and the real motive here is to improve the overall standards of infant milk formula products," said Sandy Chen, a Shanghai-based senior analyst for food and agribusiness at Rabobank.

Consumers in China are highly sensitive to food safety after persistent problems such as chemical-laced pork.

China's infant formula market is worth around $12.4 billion in 2012, and is set to double in size by 2017, according to data from Euromonitor.

In 2012, the ten biggest Chinese infant formula firms by market share were Zhejiang Beingmate (002570.SZ), Yili, Biostime International Holdings (1112.HK), Yashili (1230.HK), Daqing Dairy (1007.HK), Feihe International, Wissun Group, Wondersun Dairy, Synutra International (SYUT.O) and Ausnutria Dairy (1717.HK), the data showed.

($1 = 6.1125 Chinese yuan)

(Reporting by Adam Jourdan; Editing by Kazunori Takada and Miral Fahmy)

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Air France-KLM reports further losses in Q2

PARIS (AP) — Air France-KLM posted further losses in the second quarter as its medium-haul and cargo operations continued to suffer from the weak economy.

The Franco-Dutch airline said Friday it lost 163 million euros ($215 million) in the second quarter, compared with a 897-million-euro loss a year earlier, when accounts were hammered by the cost of a plan to shed about 10 percent of the carrier's workforce.

Air France-KLM said a planned turnaround in its medium-haul and cargo businesses "is taking longer than expected" and that "further measures" will be taken later this year, instead of in the fall as earlier scheduled.

Revenue stagnated in the second quarter as slightly higher passenger traffic was offset by lower revenue per passenger.

The joint airline is in the midst of a three-year turnaround plan and it hopes to strengthen its position by paying down debt and reducing staff costs.

Air France-KLM is struggling to compete against low-cost carriers and has said it expects to cut about 5,000 people in its workforce of 49,000. It said the plan is on track despite "the persistently touch economic environment."

The company forecast second half operating earnings would improve to around the same level seen in the first half, which would still see the airline suffering an operating loss of around 200 million euros.

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