How grey market baby formula sellers are getting away with exports

THE government is cracking down on them, but the sellers of grey market baby formula are still boosting their profits.

GREY market baby formula exporters are changing the way they do business to circumvent a government crackdown on illegal sales to China, and boosting their profits in the process.

A sophisticated supply network, made up of thousand amateur wholesalers, many of them Chinese students, is one step ahead of Australian authorities who have imposed greater checks on dairy products sent offshore.

Rigorous requirements have been imposed on exporters of packages more than 10kg, demanding a health certificate and a series of import requirements imposed by the Chinese government. Non-compliance of those requirements carries a penalty of up to 12 months’ jail and falsifying information could see sentences up to five years.

The checks have led exporters to abandon bulk supply and simply send smaller packages.

Sydney and Melbourne based “daigou”, the Chinese term given to international agents shipping in-demand products back to China, have told news.com.au how they are benefiting from the workaround.

“We used to put six tins in one box, now we changed to three tins, it is just 3.6kg far below 10kg,” said one.

“Customers in China declare the formulas they received as gifts from us.”

Other daigou told of the profit potential in sending smaller packages. Taking orders from China, usually over Chinese social media sites like WeChat, sellers jack up prices to cover increased packaging and shipping costs.

Formula sellers are packing boxes differently to avoid penalties, and making big bucks while they’re at it.

While shipping requirements are easily sidestepped, the greater deterrent for Australian-based daigou is the threat of raids and monitoring by Australian authorities.

Deputy Prime Minister Barnaby Joyce says the Agriculture Department was taking action on alleged non-compliant exporters.

“My department has recently executed a search warrant in relation to one of its active investigations into infant formula,” he said at the weekend.

“All dairy products made in Australia are required to safety legislative requirements before they can be exported.”

The minister would not confirm whether he was aware of the practice of shipping formula in smaller quantities, but a spokesman told news.com.au Mr Joyce was “keenly interested in this issue”.

“(The Minister) wants to see fair trade practices and fair returns to the farmgate for Australian dairy producers, as well as a good supply of infant formula for sale on Australian supermarket shelves,” the spokesman said.

Diagou fear investigations may result in further crackdowns and result in some grey market practices being considered illegal.

Sellers also warn further restrictions on sending the formula to China would affect Australian-based formula businesses, who they say are largely supported by the daigou trade.

Australian Deputy Prime Minister Barnaby Joyce is cracking down on baby formula scammers, but is it working? Picture: Lukas Coch/AAP

Bulk buying has led to a shortage of the “liquid gold” product on Australian shelves, with retailers having to restrict purchases of the tins as desperate parents travel from store to store to find formula to feed their children.

Scarcity has seen its value significantly boosted in China, where a distrust in local brands has led to huge demand for Australian products. A tin of formula valued around $20 at an Australian supermarket can fetch up to four times that amount when sent to China.

In China, supply struggles have spawned a counterfeit trade, creating a market for empty tins from premium Australian made, as news.com.au revealed last year.

Daigou have warned further restrictions on grey market exports would have further “negative effects” in Australia and China.

Daigou say limiting their practices could have greater consequences.

The demand has forced retailers to enforce strict limits.

Grey market sellers and permit-holding exporters are also anxiously awaiting the effects of a new e-commerce tax that will come into effect in coming days.

China will introduce a new tax of 11.9 per cent on goods bought from foreign websites, designed to eliminate competitive advantage held by offshore retailers who avoid taxes imposed on local sellers.

But the Australian Government, and formula brands selling directly to China, have little sympathy for scamming sellers who may be disadvantaged.

News.com.au has also discovered daigou sellers extending their business to distribute other Australian products including vitamins, clothing, and even bread and meat.

The Australian Government has been approached for comment.

Do you know more? [e-mail]