Zhu Xuan has stockpiled 13 tins of baby milk powder for her 18-month-old daughter in Beijing, as rumors circulate that the product is in short supply and prices will go up even further.

Zhu is not alone. Chinese parents are buying up baby milk powder supplies at convenience stores, supermarkets and online.

The price of major baby milk powder brands including Nestle and Wyeth have been rising since earlier this year. Chen Ming, whose son is 11 months old, said it's been difficult to buy milk powder for her son since January.

Chen's milk powder seller told her she could only buy two tins at a time - for 193 yuan each, up by nearly 40 yuan from last year.

Manufacturers said prices will continue to increase - driven by higher raw material and production costs - but the supply will remain stable.

Nestle raised the price of some of its products in January. Its Lactogen 2 Follow-up Infant Formula saw a 40 percent cost increase. He Tong, a Nestle spokesperson, said the company tried to keep costs down and delayed the price rise.

Xi Qing, a spokesman for Wyeth, the US-based firm, said its "progress gold" series will go up in price by 7 percent from April due to higher raw material costs.

Lu Gechuan, a spokesman for the Liaoning Dairy Association, said milk powder price is influenced by rising raw material costs on the international market.

Lu said 80 percent of the raw materials for milk powder come from New Zealand and Australia, but drought has affected the two countries for the past three years, reducing the milk exports. Lu estimates it will take at least another six months to rectify the milk shortage on the international market.

"The price of milk products will not go back to its original level immediately," Wang Dingmian, from the China Dairy Association, said. Wang expects raw milk price to rise a further 10 percent this year, while packaging costs have increased 30 percent. He noted that rising agricultural product prices are a global trend that will not change in the short term.

Wang said the high price of raw milk has increased manufacturers' costs and narrowed the profit margin to around 8 to 10 percent on middle and low-end products. The profit margin for high-end products is still relatively high, so many manufacturers are changing tack, he said.

Sales of high-end baby milk powder in China have been increasing, and it is now the second largest market for baby milk powder products after the US.

(China Daily March 28, 2008)