Party over for infant formula firms as China’s remarkable demand slows

This is according to a report by Rabobank, in which the agricultural financier predicts the formula market will still see continued growth over the next five years, but at a much slower rate than has been witnessed over the last decade. Sandy Chen, a Rabobank analyst, said the market is unlikely to retain the strong recent growth that caused formula to hit the headlines across Asia-Pacific after shortages were reported in locations as diverse as Australia and Hong Kong due to Chinese remarkable demand for the product over the last couple of years. Volume growth to halve “ China’s infant formula market grew at 16% by volume between 2000 and 2013, with international players capturing the largest share of this growth . “ We estimate this volume growth will halve by 2020, growing by just 7-8% per cent, and driven largely by income growth and improving distribution networks into lower-tier cities and rural areas .” This slowdown comes in spite of the relaxation of China’s one-child policy, with birth rates likely to rise only modestly, alongside less rapid overall economic growth compared to what has been seen over the last decade. In addition, a number of Chinese dairy companies have invested in new onshore and offshore capacity expansion projects, which will be coming onstream by 2016. “ These projects amount to 410,000 tonnes of new infant formula capacity annually, equivalent to 65% of the total China market volume in 2013 ,” continued Chen. “ This will further fuel competition, as both domestic and international players try to grab a share of a market that is expected to decelerate into 2020 .” Sorry, significant investment needed In addition, Chinese regulatory changes imposed over the last year mean that all functional food players are looking at strategic shifts, not least the infant formula industry. “ Both domestic and overseas players are making strategic shifts to meet the challenges of the new market norm and to cope with regulatory uncertainties ,” said Chen. “ This is on top of the ongoing need for consistent attention to quality and safety, and evolving distribution channels in China . “ Staying on top of these factors require significant investment, which will likely result in lower returns than in the past. While there is still profit to be earned by the well-prepared, the easy money in infant formula has certainly already been made .”

Party over for infant formula firms as China’s remarkable demand slows

The “easy money has been made” for Chinese and international infant formula companies as they prepare for the rush for powdered baby food to tail off over the next five years after a decade’s stratospheric growth.

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