May 20, 2015
Infant formula firms will need to prepare for the cooling of the skyrocketing growth witnessed over the past decade in Chinese demand according to a new report by Rabobank.
Between the years 2000 and 2013, China’s infant formula market saw remarkable headline-prompting demand and a growth in volume of 16%, however Rabobank forecasts that the market will not likely maintain this strength, estimating that the volume growth will fall by half by 2020, growing at a rate of between 7% and 8% per year.
Despite China’s loosening of its one-child-policy, the country is expected to see only a modest increase in its birth rate, while at the same time seeing a slowing of its overall economic growth compared to the past decade. At the same time, numerous domestic Chinese companies have invested in both onshore and offshore expansion projects which are estimated to add 410,000 tons of additional infant formula production capacity per year – this is equal to 65% of the country’s total market volume for 2013.
Aside from demand, regulatory changes imposed by Beijing over the past year are causing food companies to undertake strategic shifts to adjust to ongoing regulatory uncertainties, in addition to constant vigilance regarding quality and safety. All of this comes at a significant investment cost, resulting in lower returns.
Rabobank goes on to state that while there will still be profits to be gained in the sector by well-prepared companies, returns will not be as easy to come by as they were over the past decade.
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