Australia markets open in 8 hours 28 minutes

    +39.40 (+0.49%)

    -0.0025 (-0.37%)
  • ASX 200

    +34.20 (+0.44%)
  • OIL

    -0.09 (-0.11%)
  • GOLD

    -30.40 (-1.29%)
  • Bitcoin AUD

    -4,372.55 (-4.16%)
  • CMC Crypto 200

    +6.07 (+0.43%)

What’s the deal with the baby formula black market?

Source: Weibo
Source: Weibo

It was the video that triggered a social media storm: shoppers clambering over each other to snatch tins of baby formula from Woolworths’ shelves.

Who were they? Why were adults going nuts for baby formula? What were they going to do with it? And what could be done to address the phenomenon that had some worrying that Australian babies would go unfed?

The baby formula crisis is an interesting beast, and to understand what led dozens of Chinese shoppers to buy-up Australian baby formula, you need to understand what happened in China in 2008.

Take me back

It was a massive Chinese scandal, and it’s left Chinese consumers deeply distrustful of domestic brands.


The 2008 baby formula scare affected 300,000 Chinese babies, with 54,000 hospitalised, and – heartbreakingly – six dead after milk formula products were found to have been adulterated with the chemical melamine.

Many babies had been fed formula from then-market leader Sanlu, but the dangerous chemical was also found in another 21 companies’ products.

Kiwi dairy cooperative Fonterra – which owned a 43 per cent stake in Sanlu – sounded the alarm in August one month before it became a public issue, and pushed for a complete public recall. But Sanlu only recalled the product from distribution centres and wholesalers – it was still on sale to the public.

Eventually, New Zealand Prime Minister Helen Clark alerted Beijing officials directly, with the news breaking internationally in early September.

An investigation found Sanlu received complaints about ill babies from December 2007, but didn’t begin testing until June 2008. Reports also emerged claiming that Sanlu attempted to buy off critics and whistle-blowers.

On 15 September 2008, the company issued an apology for the contaminated formula, stopped production and destroyed all products.

Dozens of suppliers were arrested.

Former Sanlu chairwoman Tian Wenhua was sentenced to life in prison in 2009. Zhang Yujun, a middleman, and Geng Jinping, who was the head of a local dairy firm, were given the death sentence.

Zhang had been found to have knowingly produced 800 tonnes of the contaminated formula.

Sanlu eventually went bankrupt, with Chinese trade suffering a major hit.

Why was there melamine in the formula?

The chemical is used to formulate flame-retardant plastic, and the nitrogen-rich chemical has been known to be illegally added to food products to increase the apparent amount of protein. But it’s known to cause kidney stones and renal failures.

Poor animal husbandry and increased agricultural costs have both been attributed to dairies’ decisions to adulterate their formulas with melamine.

I’m starting to understand why there’s a black market for safe formula

Yep. International brands of baby formula can sell for twice as much as the local Chinese brands, leading Chinese shoppers overseas to purchase large quantities for resale.

The shoppers are called Daigou, and while the drivers of the markets may be easily understood, the outcomes have been widely criticised in Australia.

“This type of behaviour is clearly unacceptable,” a Woolworths spokesperson told Yahoo 7, speaking about the scrimmage in October last year.

“We do not tolerate this type of behaviour and will not hesitate to ban customers who do not comply.”

Woolworths and Coles have both restricted the purchase of baby formula to two tins at a time.

But just yesterday a mother filmed what she described as a frenzy at a Woolworths in Sydney’s south.

The video shows several customers taking two tins from the shelf and walking away. The video doesn’t show the customers returning, but the woman who filmed it said the shoppers were handing the formula to people outside and coming back for more.

What are the laws around resell?

For now, it looks like the process is largely legal.

A spokesperson for then-financial services minister Kelly O’Dwyer told the Sydney Morning Herald in 2016 that Australian law does not give the government the power to limit retail sales, while a spokesperson for then-minister for agriculture Barnaby Joyce said export laws focus on quality of goods, not the availability of them in Australia.

But it isn’t legal if you steal it, as six people found out in January.

Australian police charged six people over an alleged $1 million baby formula ring in Sydney after receiving information about coordinated thefts last year,

“Police will continue to pursue these people because not only are they making a quick dollar out of greed and disadvantaging the mums and dads of Australia, they’re also literally taking baby formula out of the mouths of babies,” detective superintendent Daniel Doherty said.

“We’re thinking this was quite an expansive criminal group that was exploiting an overseas market at the disadvantage of the Australian public.”

Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.

Now read: Tesla’s ‘Dog Mode’ keeps your dog safe while you’re away from your car

Now read: ‘Sexist’ offer to staff lands global bank in hot water

Now read: Trump’s tariffs are hurting US businesses more than foreign ones