China, Ireland and the Infant Formula Market
Milk production has been growing steadily in the developed world. In the developing world there has been some whooping increase both in the consumption and production of dairy products. Of particular interest is the infant formula, which has been a commonplace in the west, yet a prized possession in some parts of Asia : people actually lock up trusted foreign brands in safes. India alone has been the largest milk producer accounting for 16% of global production and China is the fourth largest consumer (5 billion Euros worth imported in 2013). Even though the South Asian Region is progressing in milk production, it appears to lag behind in processing, especially Infant Formula.
The consumption of milk formula in Asia pacific is booming- Hong Kong is the fastest growing market (35.4% compound growth rate) and China is keeping pace (21.6%). After the melamine contamination in 2008, there have been many contamination related scandals for Infant Formula manufactured in China. This shook consumer confidence in local products and imported products were in huge demand. It is no wonder that many parents in those markets believe that Infant Formula is superior to the mother’s milk (Breast Feeding Rate is 28 children in every 100 new-born in China) especially because of the aggressive marketing in partnership with medical institutes by local manufacturers. The parents really want the best products especially because of the 1 child per couple policy, which further implies that about 4 grandparents and 2 parents will give the child their full attentions.
New Zealand is a net exporter of dairy products and conveniently took a major market share in the Chinese market. Europe is the only region where production is significantly larger than consumption. The market is projected to grow even more in the short term in China owing to the recent shortage and quotas per passenger for Hong Kong-Mainland trip. Retailers in Australia, the UK, and Holland have limits on the amount of powder that can be purchased after incidents of entire shelves being cleared hit the streets. It might just be a great opportunity especially for Europeans because Chinese parents seem to have faith in the European Compliance system- one of the stringiest in the world. Nevertheless, the most recent Hero baby formula scandal, which involved local middlemen mixing expired milk powder into cans prepared for sale has further exacerbated the situation with the market. After the Hero case, Chinese, who can manage to, have been depending on friends or family abroad for the product. Still the market potential is huge.
This is especially favorable for dairy giants in the Europe who have been forced to remain dormant during the quota system lifted off only few weeks earlier. Ireland, with a forecast 2 billion liter increase in milk production by 2020, represents significant opportunity for this sector. It might be good to note that the Chinese market’s giant Beingmate prints Irish clovers on its premium products to remind the parents where their sources lie. China was Ireland’s second-biggest market for dairy in 2014. Until now, Ireland supplied 10% of the global infant milk formula with 1% of global dairy production. This suggests huge potential in the sector, especially because of the lift on the quota and the premium that “Made in Ireland” feels for the Chinese. Last November, Kerry Group launched the first Irish Infant formula brand “Green LOVE+”, which sells at four times the Irish price all because of the huge trust in Irish products, which have not encountered a single scandal in China.
There is a huge speculation going on about how the market is going to turn for the Europeans because there is a huge potential and the first to the battle may not be the last one standing. Chinese markets are volatile and the supply chain has to be maintained very securely to prevent middlemen from tampering. With careful planning, an expansion in the Chinese market should be a very fruitful long-term experience for the potential party.
© Pratik Baral- Alba Consulting
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