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China fines companies for baby formula price fixing

A shelf of milk powder for sale is seen at a supermarket in Beijing on July 4, 2013. A unit of Swiss food giant Nestle is cutting prices for baby formula in China by as much as 20 percent, it said after the government launched a investigation into alleged price-fixing by foreign firms.

A Chinese state agency has fined six baby formula companies $110 million for alleged price fixing. The companies include US-based Mead Johnson, French-based Danone and New Zealand's Fonterra. According to authorities, the companies violated the law by setting a minimum price for formula, raising the cost for consumers. Regulators say there was no direct collusion between the companies.

"This concept of setting minimum prices is common practice in many markets. Companies do this because they want to maintain an image as a premium brand," says the BBC's Martin Patience from Beijing. "But here in China, it appears that the regulators see this as illegal, and that's why these companies have been fined."

The baby formula industry is worth nearly $12 billion in China, and foreign brands account for about two thirds of the market. After six babies died from contaminated formula that was manufactured domestically in 2008, Chinese parents have shown a willingness to pay a premium for foreign brands.

About the author

Martin Patience is a BBC reporter.

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