Will China's Plan to Boost Baby Formula Output Hit Australian Suppliers?

Team Veye | 15-Jul-2019 Australian Suppliers

Seven ministries, including the National Development and Reform Commission, China's top economic planner, jointly issued a notice last month of an action plan to strengthen the domestic infant and toddler formula milk industry, with goals to increase domestic supplies to more than 60 percent in the market.

The newly announced plan doesn’t entirely try to shut out foreign companies. It will support domestic dairy producers in acquiring or setting up overseas bases for milk supply, encourage foreign dairy firms to invest in China as well as tighten regulations on the milk-powder imports and online sales platforms

Chinese baby formula makers jumped after the government released an action plan. Policymakers in Beijing are trying to reassure Chinese parents and boost local firms in the segment, which is expected to be worth about $32 billion in 2023, according to Euromonitor International.


 According to global data analytics company Nielsen; domestic formula milk took up 43.7 percent of the market in 2018, enjoying a growth rate of 21.1 percent.


The notice also encourages companies to acquire and restructure the infant and toddler formula milk industries to eliminate outdated production capacities and further consolidate the industry.

The notice urges enhancing the management of registrations from overseas infant and toddler formula milk producers and to strictly carry out the implementation of recording and registration of the sales system for imported dealers.

Re-packaging of imported large-packaged formula milk products is forbidden. Imported products that have not obtained formula registration in China are not allowed.

Cross-border retailers are responsible for the safety of the imported formula products and they should set up a safety and quality risk prevention system and tracking methods, the notice said.

Song Liang, an independent dairy analyst, said that with the concentration of the domestic dairy brands and the shortened gap between domestic and international dairy players, the timing is right to issue the notice.

He said their research found that the domestic sales take up 35 percent of total sales in China and international brands have 65 percent

Distrust of local producers had sent a demand for overseas brands soaring. A2 Milk is among those pouring resources deeper into China to tap demand from smaller cities. Nestle SA’s share of China’s milk-formula market has quadrupled since the scandal in 2008 to make it a clear leader.

Australian suppliers are unlikely to face much heat because it will be tough to meet the 60 percent target due to the expense of local production and because consumers lack trust in domestically produced powder. China’s wholesale infant formula market was worth $15bn last year, of which about $8.7bn was imported.

Also, Milk is much cheaper to produce in Australia because of the vast land requirements. There is an apparent shortage of such suitable land in China which makes it more difficult for domestic producers to compete.


Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.

veye logo

Grab Your Free Report On 5 ASX Dividend Stocks To Buy In 2024