Will China's Plan to Boost Baby Formula Output Hit Australian Suppliers?
Team Veye | 15-Jul-2019
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notice also encourages companies to acquire and restructure the infant and toddler formula milk industries to eliminate outdated production capacities and further consolidate the industry.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.
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