On the eve of announcing its nine-month sales figures, the world’s largest food group quietly revealed plans to close its infant formula manufacturing plant and research and development center in Limerick, Ireland. The factory, which employs 542 people, produces milk powder exclusively for export to Greater China and Asian markets.
“Obviously, birth rates around the world are declining. China’s birth rate is very low,” Nestlé CEO Mark Schneider responded at a press conference the next day. “Relatively speaking, we are making good progress in China in terms of recovering market share, but
“You can’t get away from the fact that today’s global demand is not what it used to be, compared to the manufacturing structure we were building a few years ago.
“And it’s about rebalancing and responding to specific demands, especially from Chinese consumers, who are clearly more interested in locally manufactured products, and that’s what we outlined yesterday. It was behind the plan.”
Potential closure is not the end of Nestlé’s planned Wyeth Nutrition infant formula factory, acquired in 2012 as part of its acquisition of Pfizer Nutrition. The multinational company proposes to relocate its research and development operations from Ireland to two existing facilities in Suzhou, mainland China, and Konolfingen, Switzerland. This is a clear sign that the FMCG giant is looking to strengthen its R&D capabilities in various areas.
China infant milk market: entry barriers and integration potential
China dominates the global infant nutrition market, with approximately 900,000 tons of infant formula sold each year. The country’s birth rate has plummeted over the past five years, hitting an all-time low of 1.09 in 2022 (compared to a peak of 7.51 in 1963 and 1.81 in 2017, the year before a steady decline began). was). The National Bureau of Statistics of China estimates that the number of newborns in 2022 will be 9.6 million, compared to 18 million in 2016, and is predicted to fall below 9 million in 2023. There is. Industry insiders argue that policies aimed at curbing China’s overpopulation may have led to this negative trend, but China is no exception when it comes to declining birth rates, and its neighbors Japan and South Korea have the lowest rates in the region, while China is no exception when it comes to declining birth rates. Global birth rates have also halved over the past 50 years, according to World Bank data. In 2023, there will be approximately 2.3 babies born per woman, compared to 5.3 in 1963.
However, increasingly stringent regulatory standards have led to an apparent market contraction in China over the past seven years, and more small and medium-sized businesses may be squeezed out of the market in the coming years.
Michelle Fan, consumer food analyst at Rabobank, said the China Food and Drug Administration (CFDA) has mandated registration of all domestic and international infant formula companies, which will increase the number of infant formula products from 2016 to 2021. He explained that registration has decreased. “Each manufacturer was limited to three brands for Stage 1, 2, and 3 formulations, for a total of 9 products, with a validity period of 5 years. After the implementation of the new policy, IMF Product Registration will increase from 2016 to 2021 by approximately It’s down 40%.”
In 2023, new national standards for the ingredient content of powdered milk, which came into force in February, will further increase the barrier to entry. Key changes include revised minimum and maximum levels of protein and nutrients such as selenium, manganese, and choline, and a ban on sugar, sucrose, and fructose. Huang said that as of early September 2023, only about 827 products from 70 dairy companies and 308 brands had successfully completed product re-registration.
“Regulatory changes have encouraged consolidation over the years, with the top five companies increasing their share from 37% in 2015 to 64.3% in 2022,” Huang said. “In 2023, we expect market consolidation to accelerate as many small and medium-sized brands exit the market, given the cost and timing of registration. I could not do it.”
But it’s not just small and medium-sized businesses that can be adversely affected by an increasingly stringent regulatory environment. Australia’s A2 Milk Company, a key player in the China IMF market, is waiting for the regulator to finally receive approval from the CFDA for its Formula Stage 1, 2 and 3 products in June 2023 after a two-year effort. The stock price fell due to the delay in approval. . In an interview with the Australian Financial Review, CEO David Bortolussi said the company’s strategy was “very focused on maximizing the business potential in the infant formula category in China”. “I’m putting it there,” he said. “Fortunately, we have invested in our business, our brand and our presence in China and have performed well and gained significant market share. We therefore expect to continue to grow our market share in the future. Masu.”
New channels and product differentiation
Rabobank’s Huang said of possible future moves by IMF manufacturers: “The IMF market is already crowded and competition has increased over the years. Growth strategies for IMF officials include increasing market share of existing products through new channels and product differentiation, as well as geographic diversification. This is likely to include horizontal expansion through diversification (e.g., expansion into regions with high income or neonatal growth potential) and portfolio diversification (e.g., adult-use, adult-use, and/or medical nutrition).”
In recent months, FrieslandCampina Ingrigento, the ingredients division of the Dutch dairy cooperative FrieslandCampina, has expanded its range of dairy-based early childhood nutrition ingredients through a new ingredient portfolio for fortified products for children. He told the Daily Reporter that he is looking for “room to grow.” Ages 3 and up. Examples of solutions include galactooligosaccharides to fortify powdered milk drinks and MFGM ingredients to fortify drinking yogurt.
The company argued that there is an increased focus on infant nutrition products and that this trend could provide new opportunities for infant nutrition companies. “Ultimately, this market is driven by demographics, and we do not expect global birth rates to increase for the foreseeable future,” said Global Marketing, Early Nutrition Division, FrieslandCampina Englishment GmbH.・Leader Timo Faber said. “There is still a huge infant formula market, but the future potential lies ahead.”
New Zealand dairy cooperative Fonterra is also exploring new opportunities for dairy-based ingredients in China through its brands NZMP and Nutiani. The latter will be launched in 2022 with a global focus, including China, and aims to strengthen the co-op’s foothold in the daily life and medical nutrition sectors. NZMP China, on the other hand, offers a wide range of solutions for F&B and nutrition applications alike.
To strengthen its position with increasingly influential local companies, Danone is restructuring its Chinese assets, including selling its Mengnui stake and repurchasing its Dumex Baby Food infant formula division from powdered milk maker Yasiri International Holdings. We are promoting. Danone said the Chinese market was “very strategic” for the company and said the acquisition of the IMF unit would allow the multinational to “further expand its local manufacturing capacity for infant formula products.”company also announcedAt the 2023 Growth Asia Summit, the company announced the launch of a new infant formula containing droplets that closely mimic the structure of human milk fat globules.
France-based Lactalis Group also established a Chinese ingredients subsidiary in 2019, saying the move is part of its plan to support customer growth in its key markets of infant nutrition and dairy products. This month, Lactalis entered the pharmaceutical-grade lactose market with the launch of the brand Lactalis Indigent Pharma and a new range of crushed and sieved lactose monohydrate.
Edited on 8 November 2023 14:53 GMT to correct formatting error.