China – growth in infant formula market to continue apace
Demand for imported infant formula in China continues to increase, having grown by 16% in 2012 and a further 34% in 2013 to reach 122,734 tonnes, driven by low consumer confidence in local production and increasing demand from the higher-income burgeoning middle class, according to Bord Bía’s Alan O’Brien, who is based in Shanghai.
“While demand for imported ingredients continues to grow, the Chinese government is seeking to break the consumer reliance on imported branded product, which currently accounts for 60% of a €7.13 billion market, and develop a short list of national champions. These will be strong domestic players with the confidence of the Chinese consumer. The Chinese authorities are seeking fewer but larger domestic infant formula companies. In realising these objectives, authorities have simplified the approval process of domestic formula companies through taxation, fiscal and financial support.
“Another catalyst driving consolidation within the industry has been increased regulatory standards on the production of infant formula. This has resulted in a large numbers of smaller players leaving the industry or joining together and pooling investment to bring manufacturing facilities in line with new standards. On May 30, the Chinese authorities announced a list of 82 infant formula companies that have now received certification, down from 133; this announcement coming just half a year after new standards of production were announced. ”
Alan went on to point out that since the Chinese government’s announcement of “tighter standards” in regulation last December, the industry has been quick to respond with a number of high-profile domestic strategic acquisitions (Mengniu and Yashili, Biostime & Changsha Yingke) and investments (Yili & Huishan Dairy). Since the announcement, the industry has also seen a flurry of strategic partnerships between Chinese and foreign manufacturers (Mengniu and Danone, Yili and Dairy Farmers of America, Huishan Dairy and Friesland Campina).
“While Chinese consumers will certainly look favourably on increased consolidation at manufacturing level, the core confidence issue remains at farm level. In this interim period, the impetus is on Irish dairy companies to build strategic relationships within the now certified but shrinking list of Chinese manufacturers.”