Foreign, local dairies to milk profits from smaller industry

The recent move has encouraged major foreign OEM providers to take initiatives to cut some smaller brands and to consolidate their portfolios, Song said.

There are about 8,800 registered domestic and foreign infant milk brands in China, and the new rules are likely to push half the foreign brands, but only 10 percent of the market value, off Chinese shelves, he said.

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As of April 1, imported baby formula products had to be tagged with Chinese labels before arriving in the country. Unregistered producers were not allowed to import to China as of May 1.

Sales of imported milk powder in China rose by 79.3 percent in the first two months of 2014 compared with a year ago. Foreign companies made up 54 percent of the Chinese market in terms of sales revenue in 2013, according to Global Intelligence Alliance.

The dairy regulations will give both foreign and local brands a chance to capture market share. Foreign companies, known for their quality assurance, will be able to leverage the current demand for their products. Local companies will be able to build on their relationships with local distributors, suppliers and logistical operators to lay claim to the newly available shelf space, said Nicolas Pechet, senior vice-president of Global Intelligence Alliance China.

For the time being, the memory of the 2008 melamine incidents in China are helping to bolster Chinese consumers' preference for foreign brands. The dairy market is being driven by brand confidence, and the new regulations do not address that, Pechet said.

Leng from Feihe Dairy said it will take time to regain Chinese consumers' faith in domestic dairy enterprises, but efforts to improve and ensure product quality should win them over.