HK may be better off retaining the curbs on milk powder export

December 18, 2017 10:00
Nine years after a milk powder contamination scandal in China, many mainland parents remain wary of domestic infant formula brands. Photo:

Yang Liang-lin, a taxi driver in Zhuhai, has a son of eight months. Each month he goes to Macau to buy Friso Gold, a premium milk powder, for his child. "We do not trust domestic brands. If you have the choice, you buy foreign ones," he said.

It is nine years already since the mainland witnessed the scandal of milk powder-melamine contamination that caused 30,000 babies to fall sick and six to die. But suspicion over domestic food brands remains, especially on what people feed their infants, the most vulnerable in terms of health.

This has prompted mainland parents and smugglers to buy up foreign-made infant milk powder overseas, a situation that has often led to shortage of those products in places such as Hong Kong.

That is why a majority of Hong Kong people want to keep in place the limit imposed on March 1, 2013 of 1.8 kg or two tins of milk powder being carried out of the city.

The government is now considering whether to cancel the limit. In her policy address in October, Hong Kong's Chief Executive Carrie Lam said that her administration will carry out a review and address the concerns of different stakeholders.

Lau Oi-kwok, vice-chairman of the Hong Kong General Chamber of Pharmacies, said local retailers had suffered significantly because of the limit and many had been forced out of business. "We do not have enough babies in Hong Kong to support so many pharmacies. Business would be better without the limit," he said.

Sophia Chan Siu-chee, Secretary for Food and Health, said the limit had been a "short-term measure". Her bureau will carry out a review over 12 months to understand better the supply chain and consumer behavior.

Figures from the Customs Bureau show that, in 2014, 5,152 people were caught smuggling milk powder in 4,300 cases. The figure fell to 4,300 and 3,900 cases in 2015 and 2016 respectively. In the first nine months of this year, there were 2,900 cases.

These figures show that there is still demand in the mainland, despite the modest profit and the weight of carrying milk powder. Many traders have switched to carrying other items like cosmetics, drugs and health supplements, which carry a larger profit margin.

In addition, mainlanders have other ways to buy foreign goods, including milk powder, and not pay duty on them. This is 'daigou' (代購) – ordering them from abroad via online platforms.

According to the China Electronic Commerce Research Centre in Hangzhou, such purchases this year will total 1.85 trillion yuan, for 59 million consumers, up from 1.2 trillion yuan for 42 million in 2016.

It was to combat this form of buying that, at the end of November, China's Finance Ministry announced tax cuts, which took effect this month, on a variety of food, health supplements, pharmaceuticals and clothing, to an average rate of 7.7 percent from 17.3 percent.

The tariff on some special infant milk powder was cut from 20 percent to zero, but standard infant milk formula was not included in the tax cut. Also, a 17 percent value-added tax on these products remains in place in the mainland.

The Hong Kong government must balance the interests of the different interested parties – the pharmacy industry, mothers with young children and the residents of those areas close to the border whose lives were severely disrupted by parallel traders before the limit was imposed.

In principle, it would prefer to end the limit because it sees the city as a free-trade area, with the minimum of restrictions on commerce and shopping.

Lam Cheuk-ting, a legislator with the Democratic Party, favors keeping the limit. "Hong Kong will not be able to satisfy the huge demand for infant formula from the mainland without it. In addition, the mainland’s one-child policy has been relaxed, which will increase demand. The mainland still has a problem of counterfeiting."

That is the key issue. The reason why Yang – and so many others – buy foreign milk powder for their children is one of trust and confidence; it is not an economic issue. They are willing to pay substantially more than domestic brands because the health of their child is at stake.

Buying milk powder from Hong Kong or Macau is cheaper, faster and more convenient than ordering it from abroad. So, if the limit were lifted, trading would resume here again in earnest. The demand for milk powder is enormous.

That would bring back what happened in 2012 – a shortage of product for the mothers of Hong Kong and the streets of Sheung Sui and Yuen Long full of parallel traders crowding out the residents.

The government should leave the two-tin restriction in place.

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A Hong Kong-based writer, teacher and speaker.