Infant Formula Market in China
New Zealand is the world’s largest supplier of milk powder. Fonterra brand controls nearly 1/3 of the world’s dairy trade. As the world’s largest importer of milk powder, China’s imports of milk powder market is an important market for New Zealand’s milk powder exports. According to Dcanz statistics, in 2014, Chinese milk formula market size was 682.7 billion Yuan. the “comprehensive two-child policy” will bring about 35% of the neonatal incremental correspondingly, formula milk powder market would be expanded 240 billion Yuan or so regardless of the change in milk price and feeding rate, this is a huge market opportunity for New Zealand milk powder enterprises which experienced sales plunge in milk powder pollution scandal in 2013. It is difficult to restore consumer trust in infant formula once they lose. At the same time, due to the enormous pressure on stocks, China, and New Zealand milk powder companies began to compete for sales promotions, in order to enhance the brand market share. This is a big challenge for some of the New Zealand milk powder which has been always stuck to the high-end line.
New Zealand Milk Scandal Led to the Loss of the dominant position
In 2008, Melamine was identified in a domestic infant formula brand—San Lu, leading to the declining credibility of domestic infant formula brands. At this time, the infant formula brands from New Zealand piled into the Chinese market and gained consumers’ favor as New Zealand has one of the world’s largest and highest quality milk sources. For instance, as one of the three major milk foundries in New Zealand, Sutton made production for almost 60 infant formula brands to arrange its business in China. 2008 -2012, China’s demand for imported milk powder increased from 100 thousand tons to 600 thousand tons during 2008 to 2012, and 80% of it were from New Zealand. China imports accounted for more than 30% of the total global imports.
However in 2013, Chinese consumer’s confidence in New Zealand milk powder has been shaken by the news that toxic bacteria was found in imported dairy products from New Zealand. Frequent exposure to food safety incidents resulted in the sharply decrease in the sales of infant formula brands which uses sources from New Zealand, with an average decline of 40%. This scandal offers an opportunity for European dairy brands to acquire consumer confidence in China’s milk powder market, as Europe has also high-quality milk sources.
The proliferation of New Zealand milk brand in the market, coupled with 2013 botulism toxin
, enabling the government to attach an unwritten rule to the implementation of the New Zealand dairy factory certification. Every New Zealand dairy group has been allowed to commercialize a reduced number of brands to enter China’s market. As from now, New Zealand has certified 10 dairy plants, that is, up to only 50 brands that are allowed to enter the Chinese market. In fact, enterprises that are really into China and survived are only more than 30. With the influence of this scandal and the strengthened control from the Chinese government, the import of New Zealand infant formula sharply decreased in 2014-2015.
New Zealand Infant Formula: Back to China’s Market
China’s two child policy again burst the domestic infant formula. A newborn population reaches about 300 million to 800 million per year, which stimulates the estimated annual increase of 8 million to 21 million tons of pure milk demand, and the current Chinese consumer demand for infant formula is 60 million tons.
Under the China’s unprecedented severe monitoring, in 2015, there are still many domestic milk powder brands on the black list. Consumer confidence in Chinese infant formula brands has not been really recovered. In 2016, the registration system of infant formula is expected to be implemented and weed out some small companies which rely on OEM production (Original Equipment Manufacturer). This provision will be applied for domestic and imported infant formula brand and is more favorable to the expansion of big firms. The future of the China’s milk powder market will enter the stage of oligopoly competition, which precisely provides the New Zealand milk powder giant opportunities.
According to a brief introduction of the import of agricultural products issued by the Ministry of Commerce, in January 2016 the imports of New Zealand milk powder are 15706.49 tons, accounting for 72% of total imports (21877.86 tons of total imports). Although this percentage has still some room for improvement, indeed, the consumer confidence of infant formula from New Zealand is gradually restored.
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— Daxue Consulting (@DaxueConsulting) October 30, 2015