Rosy projections for the growth of the Chinese infant formula market have proven to be wide of the mark. Two years ago Euromonitor forecast that with the loosening of the one-child policy, sales of infant formula would jump from US$19b to more than US$50b by 2020.
Shanghai-based Chen, in New Zealand this week to provide a first-hand insight into China’s appetite for dairy imports, said people were reluctant to have more than one child because of the perceived high cost of bringing up children.
“Euromonitor was pretty optimistic but they have revised down their projection sizably, it’s still a growing market but not at the same rate – about 8-9 per cent a year, more in line with what we were looking at.”
Two years ago Fonterra decided to attempt to cash in on the infant formula market by investing $700 million for an 18.8 per cent stake in Chinese company Beingmate. So far no product has been sold as a result of the deal.
In addition, after criticism over the focus on infant formula, the Chinese government has promoted breast feeding as healthier, and parents have agreed.
Chen said after a two-year hiatus, demand for imported dairy products was lifting, partly because Chinese production had fallen, although it was difficult to see transparency in the statistics.
In the early 2000s growth of imported products had been as high as 20 per cent, but today that was down to 4-5 per cent, following the melamine scandal of 2008.
Last year domestic milk production fell by 4 per cent, or 1.5 billion fewer litres than the year before. The three leading dairy provinces – Inner Mongolia, Hebei and Henan, accounting for 43 per cent of national production – recorded a drop of 3 per cent.
“Since 2008 production has been stagnant, there has been a shift in farming structure with more large scale dairy farms, and a strong exit of small farmers. There is also a problem of summer heat stress in cows which impacts production.”
As a result, demand would grow faster than domestic production, offering opportunities to exporters. Chen predicted that, with a low level of inventory, China would import more dairy products in the second half of this year.
He said consumer confidence in New Zealand products remained positive, and the country was profiting from word-of-mouth marketing from increasing numbers of Chinese tourists.
New forms of marketing such as e-commerce were becoming popular, and allied to the growth in courier services, products could be sold into second and third tier cities.
New Zealand had gradually shifted to more value add products such as cheese and butter for the food service business, where it was “pretty dominant” in those categories.
Chen cautioned New Zealand about becoming too dependent on China and pointed to countries in Southeast Asia such as Vietnam and Indonesia which were showing more rapid growth and which it should focus on.
Chen is Rabobank’s senior dairy and beverages analyst for Asia, and has been responsible for interpreting the latest trends since 2013. He has a background as an equity analyst.