Formula informants

When Geelong local James Warren*, 26, fell on hard times with his business two years ago, an associate suggested purchasing infant formula for him as an alternative source of income.

He was initially resistant, believing what he thought was the popular consensus at the time – that formula resellers (or ‘daigou’ – shoppers who purchase formula overseas for resale to Chinese consumers) were prioritising Chinese interests over Australian.

But the hunger, instability and week-to-week uncertainty increased and James decided to join his associate on a ‘formula run’ one day.

“I first started going from store-to-store – Coles, Woolworths, Chemist Warehouses – anywhere that sold formula at the same price.”

He then moved onto Babies R Us stores (since shut down) – quietly notorious in the daigou community for their lack of formula purchasing restrictions.

“I’d walk out in one transaction: $5000 for 300 tins in one hit, pay for it at the front of the store, go around to the loading bay, and they would literally load up your car for you with all the boxes.”

James soon found the cost of driving between stores added up quickly. Stock levels fluctuated, store caps on formula purchases were revoked then reimposed, and the income wasn’t nearly as astronomical as current affairs programs had purported it to be.

Above all, James’s patience had reached a tipping point after enduring months of abuse online and offline for his involvement in the daigou industry.

“They’ll call you scum, they’ll call you trash, they’ll call you whatever comes to mind first,” he says.

During one formula run at a Chemist Warehouse, a customer had complained to the store owner about James’s trolley of infant formula. When James went to purchase the formula, he was surprised to learn the staff had defended him.

Over time, he noticed it was a common theme at all the stores he bought from.

“The staff laugh at any remark that gets made. Laughs with us, tells us the whole story of what was said and then just sits there and laughs.”

James says formula runs – having formed networks with staff and managers at the stores he purchases from – are a lot easier now than they were then.

He and his partner, Aaron*, 22, shop from a few select stores around Melbourne’s south-east and receive regular texts and tip-offs from reliable staff about stock availability.

But what can be said for the formula informant?

Part of the workers’ inclination to support and identify with the daigou shopper can be attributed to a clear-cut profit motive.

For a store owner whose pallets of unsold formula near its expiry date, the daigou – who purchases almost exclusively in bulk – is a godsend. For the worker anxious to meet sales projections, formula runs can be helpful.

But for some employees – even for some daigou themselves – getting Australian formula into Chinese hands transcends money matters.

Aaron suggests, due to the volume of complaints workers receive from customers about formula resellers, workers have started to see the daigou as a sort of ‘underdog’.

“We kind of bond over the fact that we don’t care about buying baby formula and that a lot of people do.”

James (pictured) on a formula run at a local chemist. Photo Jaida Sari.

James says the nature of these customer complaints can also irritate staff.

“A lot of the staff in the Chemist Warehouse now actually turn around to the customer if they complain and ask them ‘do you have children that drink this formula? Do you have kids at all?’ and nine times out of 10, the customer will say ‘no, but that’s irrelevant’.”

A source from Coles says incessant changes to his store’s formula limits and security measures have also served to disenchant staff.

“A couple of team members have gotten frustrated over every time we have to change it, and customers get angry at us because we’ve changed it on them again.”

The conception of the daigou as an underdog didn’t simply manifest one day in Australian stores.

Dr George Marano (2018) looked at why people resell formula at depth in his PhD thesis. He pinpoints the Melamine Milk Scandal in China as the beginning of the daigou-consumer market association as we know it today.

In 2008, China’s Sanlu Group and New Zealand’s Fonterra were found to have used Melamine – a toxic chemical compound used to make plastics, glues and fertilisers – in Chinese infant formula.

Six infants died as a result of the contamination, with a further 54,000 babies hospitalised and 300,000 affected. These figures are likely to be less than the real number of victims, as many cases went unreported.

Dr Marano says this crisis was particularly catastrophic for China due to social factors like the country’s then-standing One Child Policy and cultural factors like its “hypercompetitive market”. Both, he says, raised the overall estimation of the child in the Chinese family unit.

“They invest a lot in their children – you can see that especially in education, in their upbringing, in their extracurricular activities.”

“That feeds all the way back to the developmental aspects, and infant formula is one of them. It’s actually pretty much the beginning of it.”

In the context of the Melamine Milk Scandal, the daigou is seen as a saviour to Chinese consumers who don’t want to put their children’s lives at risk.

Yet, with little public recognition as a deeply instrumental factor in the growth of the daigou industry, questions must be raised about other elements of the industry that Australian media coverage has tended to ignore.

Firstly, the Melamine Scandal was reflective of a much wider issue surrounding food safety in China.

Many of China’s domestic food manufacturers are tiny, local firms with less than 10 employees. Inadequate regulations, laws and policy enforcement have jolted Chinese and overseas consumers into over 20 more serious food contamination crises since 2008.

Workers in the dairy industry at the time even allege that the contaminated infant formula was recycled for use in biscuits, hinting at something much larger than simply negligence.

Counterfeiting is also an issue of supreme concern in China, with reports of counterfeit products coming directly from ‘established’ distribution channels.

Given the magnitude of Chinese food safety concerns, it may not be surprising that the public opinion of the daigou might shift from selfish profiteer to something more of a hero.

Secondly, the common narrative put to the public is that Chinese consumers are specifically after Australian formula.

Yet despite increased demand for imported formula, domestic-produced formula remains the most-consumed in China.

Since 2008, demand for dairy has grown overall in China. While this was reflected in the formula exports of other countries immediately after the Melamine Scandal, demand for Australian formula only grew after 2012.

Australians often hear about the 400,000 daigou ‘taking’ Australian formula, without being informed that New Zealand, all 28 countries in the European Union and the USA all export more baby formula to China than Australia.

When the Australian daigou is seen in context with the rest of the world, their footprint is comparatively small.

A third myth about daigou shopping is that it is extremely profitable and minimally taxed.

The truth is the income is never consistent and is largely consumed by excessive fees.

“When you buy anything on a shelf in a store, you’re paying tax. When they send it, they need to pay more tax. They need to pay export fees, they need to pay all sorts of fees just to get the product into Chinese hands,” says James.

“There’s barely any profit in this business anymore.”

To compound the daigou’s woes, Australian formula manufacturers are increasingly sending their products directly to China – seemingly erasing the middleman altogether.

“The Australian industry still has a lot of work to do with regards to market share in China,” says Dr Marano.

“Brand awareness and building distribution channels are really the two keys for long-term profitability, and many Australian companies still lag (behind) the overseas brands.”

In the meantime, staff and consumer loyalty to their daigou may spell hope for formula resellers yet.

“There is still a window for the daigou for the foreseeable future.”