Danone and Nestle Close or Idle Factories in China

Analysts say the moves highlight the cutthroat competition from China's domestic food companies.

Global food conglomerates Danone and Nestle said they will close or idle factories in China, moves analysts said highlight the tough competition from domestic players.

French group Danone will suspend operations at one of its two yogurt factories in China, while Swiss firm Nestle will shutter one of its three ice-cream plants, the companies told AFP.

Analysts said foreign dairy makers have struggled in China, where local firms such as Sanyuan Group, Inner Mongolia Yili Industrial Group and China Mengniu Dairy are better recognized and make similar products at a cheaper price.

"Foreign companies making such products in China have no competitive edge," said Ma Wenfeng, an analyst at Beijing Orient Agribusiness Consultant Ltd.

"Each place has their own local brands that are more recognized in their own region. For example, Shanghai has Sanyuan and in northern China there is Mengniu."

But Danone spokesman Xu Jie denied that the suspension of work at the Shanghai factory is due to local competition, saying the company is "working on a new and more centralized strategic plan for our fresh dairy products in the Chinese market."

"The severe-competition condition has been there for so many years. We are just working on a series of assessments to improve our business," he told AFP.

The French company will continue to operate its yogurt factory in Beijing as it adjusts its "strategy to make it more sustainable and focus our investment in a few major cities."

Nestle [China] Ltd. spokeswoman Nancy He said the company will close an ice-cream factory in eastern China as well as suspend retail sales in the same region as it focuses on markets in the country's north and south.

Yan Qiang, an analyst at Adfaith Management Consulting Inc., was quoted by state media as saying that Danone and Nestle may be shifting their focus to "higher-end products" to meet growing demand from well-heeled customers.

China's dairy industry, like the rest of its vast food sector, has been hit by countless scandals in recent years involving contaminated products.

In March, state media said more than one-fifth of dairy producers would lose their licenses after inspections aimed at preventing a repeat of the 2008 toxic-milk scandal that killed at least six babies and sickened 300,000.

Copyright Agence France-Presse, 2011

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