Supply and demand: How Australia could solve China’s baby formula problem

Economic experts at Deakin University are highlighting the images of angry parents unable to buy baby formula for their children as a need to better regulate the impact of trading practices in Australia.

According to results of research conducted by Deakin Business School’s Department of Economics, products brought in one country and sold in another without the permission of the manufacturer by people travelling between the two countries is presenting a challenge not only for Australia but also other countries and territories such as Japan, Hong Kong and the United States.

Department of Economics senior lecturer Dr Xuan Nguyen says researchers considered the impact of parallel trade on the financial welfare of the home country (based on a combination of the financial benefits to consumers, producers and government revenue) and what actions could be taken to ensure no one was disadvantaged.

“In this situation there is a demand in China for high quality baby formula. This demand is being met by parallel traders who travel to Australia, buy large amounts of baby formula and then sell the product back in China. Here we see that the manufacturers of the baby formula benefit from the sales because of the increased demand and the parallel traders make a profit from selling the formula at a higher price back in China,” Dr Nguyen said.

The researchers found it was possible to get the balance right with parallel trade, rather than outright banning the practice.

“A key recommendation from our study is the implementation of good government policy measures to control the quality of product people can take out of Australia via the parallel trade channel. This would involve a change of policy for many players from the producers, to the pharmacies and supermarkets, as well as customs,” Dr Nguyen said.

The research paper Cross-border Travellers and Parallel Trade: Implications for Asian Economies is the first theoretical attempt in the economics literature that studies parallel trade by cross-border travellers. 


Send this to a friend