by Yasmeen/Terry Xu
The increase in the price of formula milk powder for infants has been the focal point in Singapore since the beginning of the year. Surveys and data has shown that the cost of milk powder in Singapore far exceeds the cost of milk powder in neighbouring country Malaysia, and that the competition between milk brands has proven to be steep.
Earlier this month on the 5 May, Member of Parliament (MP) for Punggol Single Member Constituency (SMC), Sun Xueling had written a post on her Facebook page about the rising cost of milk powder in Singapore.
She had intended to ask parliament about ensuring “a healthy market structure as well as the availability of accurate information, thereby safeguarding the rights of parents and ensuring the best care for our young children”.
In her post, Ms Sun mentioned that the lack of choices and accurate information for consumers in Singapore can lead to significant pricing power by infant milk formula suppliers.
She said, “A standard can of 900g of infant formula purchased from a regular supermarket costs about $56 on average, compared with it costing $25 in 2007 . Based on an online survey I conducted over 3 days, which 2500+ respondents completed, parents with children under 1 year old on average spend about $191 per month on infant milk formula.”
Based on the research Ms Sun had done, the price of one 900g tin of infant formula has risen 120% over ten years, nearly twice as fast as nominal median incomes in Singapore which rose 65.6% over approximately the same period. “The rise in the price of infant formula had thus outstripped the rise in incomes, placing a greater strain on household expenditures,” Ms Sun said.
Tin Pei Ling raises the issue in parliament
Ms Sun could not secure a slot in Parliament, and was therefore not able to raise the questions she had, but Ms Tin Pei Ling, MP for MacPherson SMC, did bring the issue forward in parliament on Monday, 8 May.
In her question to Dr Koh Poh Koon, the Minister of Trade and Industry, she asked, that given the rise of milk powder prices in Singapore far exceeds inflation rates and the increment in other countries, whether the Ministry will work with local distributors and retailers to ensure fair pricing.
In a detailed response, Dr Koh said that besides consumer education, the government will do more in three ways – through maternity hospitals, to review import requirements to facilitate more formula milk options and third, to put in place stronger consumer protection by tightening advertising and labelling regulations.
In terms of reviewing import requirements and tightening government regulations, the minister said that several measures can be taken together “to encourage greater price competition between brands”.
He said that the government will strengthen restrictions on advertising and labelling. Additionally, “the Agri-Food and Veterinary Authority (AVA) will tighten its regulations on labelling and advertising further, including prohibiting the use of nutrition and health claims, and idealised images for infant formula milk”.
“This will also discourage companies from incurring massive costs on aggressive advertising and marketing activities, and subsequently passing these costs on to consumers. Taken together, the increased choices available, and improved clarity of labelling should enhance the competitiveness of the infant formula market,” Dr Koh added.
TOC’s report on the rising cost of formula milk in Singapore
Tables below show the cost per 100 grams of baby milk powder in Singapore, China and Malaysia by stage:
Findings released by the Competition Commission of Singapore (CCS)
In a report released by CCS on Wednesday, 10 May, the findings attributed the increase in cost to:
- The increase in markup of wholesale prices over manufacturing costs by formula milk manufacturers being the main contributor to increases in the retail prices of formula milk
- Investments in marketing and research & development activities also increased the overall costs for formula milk manufacturers. CCS found that total marketing expenditure by all major manufacturers increased by 42.4% between 2010 and 2014
- Insufficient understanding of the nutritional content of formula milk and the dietary requirements of infants and young children have often led parents to perceive that the more expensive or premium products are of higher quality, stifling the price competition and the limited competition for other brands to enter the market
- The resulting brand loyalty and the limited effectiveness of price competition in encouraging parents to switch to a new brand can present significant barriers to entry for new brands or barriers to expansion for existing brands which do not engage in such efforts. It may be challenging for a new entrant to gain traction among consumers in a short period of time as awareness and trust in a brand takes time to build up. In turn, retailers are keen to stock only what consumers demand.
- The lack of alternative sources of supply of formula milk products besides the authorised distributors of formula milk manufacturers in Singapore limits the extent of price competition for the same brand in the market
A report released by Straits Times found that mother’s interviewed by them were “shocked and disappointed” to learn that marketing expenditure had heavily contributed to the increased cost of formula milk. As stated above, between 2010 and 2014, CSS had found that total marketing expenditure by all major companies had increased by 42.4%.
Recommendations by CCS
Three broad recommendations were put forth by CCS, one of which is to educate consumers on the nutritional content of formula milk and the nutritional requirements of infants and young children. Better informed consumers will lead to improved consumer awareness on the availability of a variety of formula milk products at different price points.
“This will allow consumers to understand the choices available in the market and to make more informed decisions rather than relying on perceptions such as ‘more is better’ or ‘more expensive means better quality’. This would help to increase price competition over time,” CCS said.
Another recommendation mentioned by the competition watchdog was to “encourage price competition (i) within the same brands by reviewing parallel importation rules while still maintaining food safety and security, as well as (ii) between brands through exploring the introduction of private labels”. Both these measures, CCS said, will help to widen the pool of formula milk suppliers in Singapore.
Finally, in order to help reduce the barrier to entry for new and existing brands, CCS said that “sponsorships and payments that formula milk manufacturers provide and their impact on the milk rotation programmes in the hospitals could be reviewed”.
CCS’s full report can be found on their website.
Regulation and lack of regulation
It can be said that the regulation of milk companies resulted in the companies seeking alternative means to promote their products. This, combined with the restriction on companies offering cheaper products contributed to the uncontrolled increase of milk powder prices over the past years.
To protect and promote breastfeeding in Singapore, the Ministry of Health (MOH) established the Sale of Infant Foods Ethics Committee, Singapore (SIFECS) in 1979.
This committee formulated and implemented the Code of Ethics on the Sale of Infant Foods in Singapore, noting that the World Health Organisation (WHO) recommends exclusive breastfeeding (that is the infant only receives breast milk without any additional food or drink, not even water) for the first six months of life.
Under Section 8, limitations were also imposed on the “infant food industry” regarding direct advertising of products, point-of-sales promotions, as well as publishing of promotional materials.
“The Infant Food Industry cannot organise point-of-sale promotions to induce sales at the retail level. These include distribution of samples or any other promotional materials, special displays, shelf labelling, price-off offers, discount coupons, premiums such as hampers and gift packs, and tie-in sales for products within the scope of the Code,” the website stated.
TOC understands from distributors of milk powders that there are two factors affecting the introduction of cheap milk powders in Singapore:
1. Companies have to compete with premium brands for shelf space in supermarkets, making it infeasible to offer cheap milk powder in the retail space
2. In order to get access to mothers, companies have to reach out to them via the hospitals. But as the commission has uncovered, hospitals are given benefits in kind to promote milk powders. When that happens, the originally cheap milk powder is no longer cheap.
One could ask, why not have the company sell their milk powder online then? Under 8.6 of the Code of Ethics, it states, “the Industry must not provide any financial inducement towards the purchase of their products online or via any other electronic channels”.
Measures recommended by CCS does not address issues
Therefore with the mentioned points in mind, consumers are likely not to see an improvement in prices even if action is taken to follow the recommendations by CCS.
The recommendations by CCS are simply a better of saying “Milk is milk” to consumers and to buy the milk formula that consumers can afford. Comments by readers on the issue of “milk is milk” have made it clear that it is not the premium label that parents are looking for but whether their children can accept the powder.
As for the other two recommendations by CCS, they somewhat failed to take into consideration the points mentioned above and to answer the question of why does milk powder cost so much less just across the straits. Cheaper milk powder cannot enter the market because of existing regulations that prevent cost-efficient marketing and entry-barriers to new players, not to mention the dwindling market of parents who rely on milk powder.
While breastfeeding is a healthy practice that ought to be promoted, the heavy-handed manner of restricting milk companies on their distribution and promotion might be too aggressive to the detriment of mothers. Mothers who who cannot produce enough breast milk due to physical constitution or stress of work, will have to bear the brunt of the restrictions and high cost of marketing.
If any entity can solve the issue of high cost milk powder, that entity ought to be NTUC Fairprice, given its extensive retail outlets around the island and its ability to produce its own house brands.
If the establishment really believes in “milk is milk”, NTUC should consider spearheading the production of its own formula milk product to be placed on its shelves, for families who will benefit from the cost saving.