China Has a Grey Market for Australian Baby Formula

Chinese students and tourists are loading up on infant formula and health supplements to sell online or send home to relatives. Australian dairy products have been in high demand since the 2008 milk formula scandal, where 300,000 Chinese babies fell ill after drinking melamine-tainted milk.

Confidence in Chinese dairy products has remained low since, with Chinese nationals trusting foreign imports over domestically produced goods. It's a boom Australia's dairy industry is keen to cash in on, but China's current tariffs on imported milk make it cheaper for Chinese travelers and students to buy milk powder overseas and send it home.

In Australia, a tin of powdered formula costs an average of $25. Demand in China means that same product can be sold for up to $100. At the time of writing, international shipping for a 900g can is $32, clearing $43 profit per tin.

The trend has resulted in the supermarkets of Melbourne'scentral business district (CBD) enforcing limits on the number of milk powder cans that can be bought at a time. The decision comes after complaints that Chinese nationals are depleting supplies for local families. At Big W in Melbourne's CBD, customers are limited to four tins per transaction, while the Woolworths next door allows six cans of toddler powder to be bought at a time.

Keen to capitalize on the market, a number of logistics services specializing in shipping food products to China have recently sprung up in Melbourne's CBD. They cater specifically to Chinese individuals stocking up on infant formula and other health products, and offer cheap shipping to China.

It's a competitive market. On one street in West Melbourne, just outside the CBD, there are six businesses, almost side-by-side, specializing in the same service. Some are no more than a bare office space with a couple of weighing scales, stacks of boxes, packaging foam, and a desk. One tiny store operates out of what looks like a garage space. VICE hit up a few shops to ask why China's in love with Australian infant powder and health vitamins.

Bessie has been working at Chang Hong Travel for a year. In addition to their shipping service, the shop also stocks health supplements and milk powder next to classic Australian souvenirs such as Ugg boots and stuffed kangaroos.

She tells me that the most popular item people send is infant formula. She's seen customers send seven boxes per week back to China. Each box contains six cans. "People go to Chemist Warehouse and then they come here to ship it back home to China," she says. "For some people it's a business. Some are just Chinese moms who live in Melbourne and buy this for their friends and send it back home."

It's the same story next door at another logistics shop. When I enter, shop assistant Jack is answering one of the many mobile phones behind the counter.

For him, supplements are big business. "Counterfeit food products are a big concern for the Chinese," he tells me. "That's why Swisse and Blackmores are two of the most popular health supplement brands. You can buy them in China, but if you buy direct from Australia, people think it's more legitimate."

He says some of his customers are operating online businesses through Chinese social media channels like WeChat or selling through TaoBao (China's version of eBay). In his experience, sellers are young Chinese nationals, studying in Australia and selling health products through their extended network back home. Six cans of infant formula are usually sold for between $40 to $50 online.

"It's a good deal to buy overseas because you don't have to pay the 30 to 40 per cent Chinese commercial tax on top. You just send it back as a personal parcel," he says. "This kind of business happens outside of Australia, too. Among Chinese people, Japan is famous for rice cookers and nappies, and the US is famous for cheaper luxury goods."

I head to Chang Jiang International Express, a popular logistics store operating on Swanston Street. It's situated opposite QV, a shopping center with a range of supermarkets and pharmacies.

Store assistant, Katherine, says supermarkets sometimes run short of infant formula, which is why Chang Jiang stocks a couple of spare boxes. Again, infant formula is the most popular item being shipped from here.

Courier services like the one Katherine works for first established themselves in outer suburbs with a large Chinese population and only recently branched into the Melbourne CBD. Katherine tells me the Swanston Street branch ships 200 packages a day. That averages to about five tons of goods per week.

While scoping out the shipping businesses, I spot two girls with a haul of Chemist Warehouse bags. They tell me they are posting orders from their online shop. Alice says they've had 50 orders since they began selling three months ago and they come to the shop to send things off once or twice a week. They show me their haul. It's mostly Swisse and Blackmores vitamins, along with some Elevit and children's vitamin gummies.

Several people I speak to in the store mention that their families prefer Australian vitamins over those produced in China, for fear of pollutants and contamination.

China's appetite for Australian food and health products shows no sign of abating. Late last month, China's second largest e-commerce site, JD.com, launched its "Australian Mall." The new portal sells authentic Australian food products to Chinese consumers, who are willing to pay a premium for them, sometimes at twice the retail price in Australia.

While the rationing of infant formula at supermarkets and other health products at pharmacies is getting on the nerves of some, it's likely to continue until the domestic Chinese market manages to keep up with demand. The trend however, has placed Australia's food manufacturing industry in an opportune position to expand their markets, and judging by the emptied supermarket shelves, they'd be silly not to.

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