50% tax reduction on important ingredinets for milk powder production

According to the State Council’s Customs Tariff Commission, starting from January 1, 2021, my country has implemented temporary import tariff rates lower than the most-favored-nation tax rate on 883 commodities. At the same time, some tariff items have been adjusted, bringing the total number of adjusted tariff items to 8,580. This is an increase of 31 from 2020. Among them, the tariff on some special medical foods was directly reduced to zero, and the tax reduction rate for important raw materials for the production of infant milk powder such as whey, lactoferrin, and anhydrous lactose reached 50%.

Dairy industry analysts believe that tariff adjustments will help reduce the production costs of domestic infant MILK powder companies, but specific to each can of milk powder, it will only bring about a cost reduction of 2-3 yuan, which is difficult to reflect in the terminal price. The 12% to 15% reduction in special medical food tariffs is a real cost benefit for foreign brands that have an advantage in research and development. The key lies in whether the product terminal price can be reduced.

Each ton of whey powder can save 600 yuan

Public information shows that whey is a natural by-product produced when cheese or casein is made. High-quality whey powder is mainly used in the production of infant formula milk powder, and the content of the formula powder is about 40%-50%; medium-quality whey powder can be used to produce cakes, bread and other processed foods, as an additive to improve the taste; Poorly used as feed additives for young animals.

According to the data released by the Agricultural Trade Promotion Center of the Ministry of Agriculture and Rural Affairs, since the dry dairy products other than milk powder in my country, such as cheese and butter, have an annual output of about 1 million tons, accounting for only 4% of the country’s total dairy product output, they are regarded as a natural by-product of cheese. The production of whey powder is very small, mainly relying on imports. From 2010 to 2019, my country's whey powder imports increased from 263,000 tons to 451,000 tons, of which it reached a historical peak of 555,000 tons in 2018, accounting for about 1/5 of the total dairy product imports that year.

In 2019, my country imported 204,000 tons (45%) and 162,000 tons (36%) of whey powder from the European Union and the United States. Among them, imports from the EU are mainly high-end whey powder for processing infant formula milk powder, with an average import price of nearly 2,000 US dollars/ton; imports from the United States are mostly low-end whey powder, with an average import price of less than 1,000 US dollars/ton.

According to the latest tax rate adjustment plan of the Ministry of Finance this round, the import tax rate for whey protein powder (whey protein content of dried whey protein by weight exceeds 80%) will be lowered from the previous 10% to 5%. Based on the average import price of EU in 2019, it means that every ton of high-end whey powder can reduce the tariff of 100 US dollars (about 646 yuan).

A relevant person in charge of a domestic milk powder manufacturer calculated an account for a reporter from the Beijing News: a can of 800 grams of infant formula milk powder, excluding some of the whey components that come with the raw materials, the amount of whey powder that needs to be added only accounts for 10%-20%, the cost is only 2-3 yuan. Even if calculated at an additional 50%, the cost of a can of milk powder due to the tax reduction of whey powder is less than 30 cents.

It is still difficult to shake the terminal price of milk powder

In addition to whey powder, the additional amount of anhydrous Lactose added to a can of infant milk powder accounts for about 20%-30%. After the tax rate is reduced from 10% to 5%, it is expected that a can of milk powder will reduce the cost of 1 yuan-1.5 yuan . As the price of lactoferrin raw materials has experienced a roller coaster-like decline, the tariff adjustment also has limited impact on the production cost of domestic infant milk powder.

The new national Standard "Food Nutrition Enhancer Lactoferrin" GB1903.17-2016, implemented in July 2017, revised the physical and chemical indicators of lactoferrin, increasing the purity from 90% to 95%, resulting in some raw materials on the market at that time Unable to meet the standard. Affected by this, many infant formula milk powders with lactoferrin were forced to increase prices in 2018, and some milk powder companies that use lactoferrin as an important raw material, such as Beinmate, once highlighted the cost pressure.

According to Song Liang, a dairy industry expert, my country's lactoferrin raw materials are mainly imported from New Zealand, the Netherlands and other countries. Since the introduction of the new national standard, the price of lactoferrin has soared from 3,500 CNY/ton to 4,000 CNY/ton to 30,000 CNY/ton at the peak of 2018, and it is still unavailable. However, since the end of 2019, as several major suppliers increased their production capacity, the price of lactoferrin has gradually fallen, and the current price per ton has dropped to more than 10,000 yuan.

In March 2020, Beinmate responded to investors on the Shenzhen Stock Exchange platform and stated that the company has signed annual agreements or supplementary agreements with many mainstream raw material suppliers such as New Zealand Tatua Company. Based on an estimate of 10,000 yuan per kilogram of lactoferrin, it is expected that the whole year Can save 40 million yuan in cost.

Compared with the natural fall in the price of lactoferrin, the cost impact of tax adjustments is much smaller. According to 800 grams of infant formula milk powder per can, 30-330 mg/100 grams of lactoferrin added, and 10,000 yuan per kilogram of lactoferrin, the tax rate will be reduced from 10% to 5%, and the corresponding cost of each can of milk powder will be Reduce about 0.12 yuan-1.32 yuan.

According to the estimation by the person in charge of the above-mentioned milk powder enterprise, after the tax rate adjustment of major imported raw materials such as whey powder, lactoferrin, and anhydrous lactose, the total cost of each can of domestic infant milk powder will be reduced by 2 yuan to 3 yuan. For production companies, it has reduced a certain burden, but it is expected to be difficult to reflect on the consumer side."

This has also been confirmed by multiple milk powder manufacturers. China Feihe told a reporter from the Beijing News that tariff adjustments have a relatively limited impact on the cost of the company's terminal products. In view of various costs, no price adjustments have been made to the products.

Ausnutria also said that since most of its infant milk powder is imported in original cans, it is basically not affected by the tariff cut. The pricing of products is affected by many factors, such as brand, market, cost, channel, product positioning, etc. Ausnutria milk powder will not have price adjustments for the time being.

Special medical food price cuts can be expected

Although the tariff cuts on several major milk powder raw materials have limited impact on terminal prices, the industry generally believes that this round of tax rate adjustments is more favorable for foreign milk powder brands such as Nestlé, Danone, Abbott, and Mead Johnson.

According to the latest tariff adjustment plan, the tariff on special medical foods such as lactose-free or low-lactose formula, partial hydrolysis of milk protein, deep hydrolysis or amino acid formula, non-dairy-based preterm/low birth weight infants or breast milk nutritional supplements, etc., will be directly reduced from 12% to 0; The tariff on special medical foods such as preterm infant/low weight infant formula (milk-based) and breast milk nutritional supplements (milk-based) is reduced from 15% to 0.

"If the entry price of a can of special medical milk powder is calculated at 200 yuan, the second round of tax reduction will reduce the cost of 24 to 30 yuan, which is definitely good for foreign brands. It depends on whether their terminal products can be reduced in price." The person in charge of the milk powder company said.

In fact, one of the main purposes of this round of tariff adjustments is to "also benefit the people." The Office of the Customs Tariff Commission of the State Council issued a document on December 23, 2020, saying that the second batch of anti-cancer drugs, rare disease drugs, and food for special patients will be zero-tariffed, and medical equipment such as artificial heart valves and hearing aids will be reduced. The import tariffs on raw materials such as whey protein powder and lactoferrin are aimed at "reducing the economic burden of patients and improving the quality of life of the people."

Danone and Abbott expressed inconvenience to respond to the impact of this round of tariff adjustments on special medical foods on enterprises. Nestlé responded to the Beijing News reporter on January 5, stating that Nestlé fully supports the government's new policy of reducing tariffs on foods for special medical purposes. The establishment of this category through increased awareness and education will further help to fully realize the potential of this category. Consumers bring benefits and therefore promote the development of this industry in the Chinese market. Since the price adjustment policy has just been introduced, Nestlé needs to discuss internally before making a decision on whether to adjust product prices.