Infant Formula and the Chinese market

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In 2013 China is the global leading country with 12, 93 US$ MN and still has enormous market growth. In 2016 Chinese infant formula market supposed to gain up to 20.72 US$ MN.

Infant Formula_Daxue Consulting

Still the infant formula market has to struggle with many challenges a triggered by a series of food safety scandals. First in 2014 fake milk powder was discovered on the market. The infant formula products of Sanlu had none nutrition; 13 cases of death babies in the province of Anhui were registered. In Sept 2008 the biggest food safety scandal shook the world. Again Sanlu, and several more mostly domestic IF suppliers had produced milk powder where large quantities of melamine were added to give it the appearance of having adequate protein levels. In total 300,000 babies were infected, 104 seriously ill, and 6 cases of death were registered. This food safety scandal caused significant changes in the Chinese as well as in the global IF market.

Due to the several food scandals, Chinese consumers lost their confidence to domestic products, which lead to a relocation of their demands to the global market. The demand on the markets increase rapidly. This in turn to critical bottlenecks for the production for the foreign suppliers. They were unable to overcome the increased demand to deliver all supermarkets. The origin domestic customers were not satisfied and disappointed.

In order to fulfill the domestic customers demand many purchasing limits and fines are ordered. However the problem could not be solved this way, since buyers would just go to the shop more often. Some foreign suppliers as Milupa stopped exporting their products to China.

The consequences are twofold. First the supply cannot meet the demand, hence prices for foreign IF increase. Second a development of an independent third party market started. Relatives and friends first started bringing IF as a souvenir to their families in China. Quickly entrepreneurs and students abroad discovered this market potential and conducts IF business e.g. via the Internet. They would provide foreign IF for a lower price than the legitimate channels in China, since the average prices in the market out of China are much lower. This market could even be compared to the heroin market.

On the long run these third party businesses should disappear from the market. Therefore the Chinese government orders new requirements in different areas to restore consumers’ trust and rebuild the Chinese IF market with domestic suppliers. New investments, higher management and production requirements, stricter environmental settings were planned and implemented. As already today in 2013 China’s dairy industry has been rebuilt with higher-producing cows living on efficient massive factory farms and eating better food. China makes nearly as much milk as the pre-scandal peak in 2007, with 350,000 fewer cows. In 2018, 80% of the IF products should be produced on the Chinese market again.

For further outlook quality certification can be a helpful tool to regain trust of Chinese consumers. Introducing a certification system that allows the full traceability of the ingredients used, possibly verified by independent international agencies, would be an important step in building confidence.

Furthermore new technologies to identify germs in the early stage could gain market potential on the Chinese market.

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