2 minutes with the China Practice: Formula time

It's 8:25 in the morning and you're making the mad dash to the bus stop to start your morning commute. You grab at your phone to occupy yourself during the next half hour of monotony. Unbeknownst to you, a hundred metres away at the local supermarket, a daigou is also grabbing at her phone ready to list the stash of baby formula that she has been able to purchase from the local supermarket onto her eBay account. 
 
It's a story that has been played and replayed across our news channels. The Chinese thirst for Australian baby formula has left some supermarket shelves empty of baby formula and some mothers unable to feed their newborns. The supermarkets have tried to address this issue by limiting the amount of baby formula that shoppers are able to purchase to two cans per transaction. However, these policies are difficult to enforce because the daigous are technically doing nothing wrong - they are simply buying baby formula. 

What are daigous? 

The Chinese term meaning "buy on behalf of" has now become a popular reference for people whose sole job is to purchase popular items in Australia (e.g. baby formula, vitamins and health foods) and on-sell them in China. Daigous charge a premium on their service, a mark-up of 33% is not uncommon. Usually, this is done through online platforms such as T-Mall and Alibaba. It is believed that there are about 400,000 daigous in Australia. 
 
Recently, it was announced that the Chinese health food company Health & Happiness International Holdings has acquired a powdered milk factory in western Sydney to focus on producing goat milk baby formula (a popular alternative to cow milk baby formula for babies prone to allergies). Formerly known as Biostime International Holdings, this was the company that acquired Swisse Wellness for $1.67 billion in late 2015. However, the Biostime brand lives on and the goat milk baby formula will be marketed under this Biostime brand. Whilst being a well-established baby formula brand in China, the Biostime brand is relatively new in Australia but has some supermodel firepower after signing Miranda Kerr as its global ambassador.    
 

Will this acquisition help to stem the Chinese thirst for Australian baby formula? 

It remains to be seen. The chairman of Health & Happiness International Holdings announced that there would be a concerted push into China with this Australian produced goat milk baby formula. 

However, there is some scepticism on how successful the venture will be due to the inherent distrust in products like baby formula that are sold in China. Whilst both products are produced in Australia, the fact that one is sold in Australia may give it the competitive edge on the locally sold product. 

Cracking down on daigous

 Another factor which may impact the daigou operating model is China's new e-commerce laws. From 1 January 2019, nearly all e-commerce operators are required to register as a business entity and comply with reporting requirements especially in relation to tax. Penalties may apply for non-compliance. 

E-commerce platform operators such as Alibaba, T-Mall and even WeChat (as provider of a communication channel to sell goods) are required to verify the identity, business and tax registration and any other required permits or licenses of the operators who use their platform. Daigous who do not comply with these new e-commerce laws will almost certainly not be accepted as an operator on these e-commerce platforms. Chinese customs also appear to be enforcing the new laws by imposing penalties and seizing goods that have not been correctly declared. 

The new e-commerce laws may well signal an end to the daigou practice. It will be interesting to see if these entrepreneurs can adapt to the changing market conditions.