China, the world’s largest market for infant formula milk, is facing major internal issues of pandemic outbreak and low birth rates which could cripple demand for infant formula from overseas. This is exacerbated by stiff competition in the market due to the growing popularity of domestic infant milk brands.
Three of the world’s leading infant formula milk producers, Danone, Abbott, and Wyeth are all facing major market disruption as China is one of their biggest export market, and this could affect the whole dairy industry from the processors to the farmers in the long run.
According to Euromonitor, Chinese brands have rapidly gained market share in the infant formula segment in recent years with Feihe taking 20%, up from 12% in 2019. Yili, another leading dairy producer took 14% share in 2022. In contrast, foreign brands like Danone, Nestle (Wyeth) and Abbott saw their shares plunging to 12%, 10% and 3% respectively.
The ongoing pandemic has led to continuous disruption of shipment of products across the globe, which affected the performance of these imported brands. Adding to these obstacles are new standards for infant formula to be implemented by the Chinese government in 2023, with many companies including European manufacturers still awaiting for approval.
Industry experts have projected that as much as a third of all formula brands will fail to gain entry due to China’s new standards, while local brands will gain further consumer trust with the new standards in place, thereby impacting the foreign brands.
Meanwhile, European producers are facing a double whammy, as their infant formula products are not approved for sale in the US as they are not regulated by the US Food and Drug Administration (FDA). The US is the second largest market for infant formula. Presently, 4 companies control about 90% of the US market with Abbott controlling almost half of the market followed by Mead Johnson, Nestle and Perrigo.
Only 2% of infant formula is imported and FDA rules make it very hard for new companies to enter the market.
In 2022, the FDA introduced temporary import exemptions until December 2022 to a number of non-US production facilities including Abbott and Danone due to critical shortages in supply of formula milk in the country. Once the exemptions expired, importers will face tariffs of up to 17.5% on sales to the market even if technical food safety standards are approved.