China infant formula boom: Kiwi exports to top NZ$1bn for the first time
The country's overall infant formula exports have seen a 40% increase since 2010, according to ANZ economist Con Williams.
ANZ reported the value of these exports to be nearly NZ$800m last year (an almost eight-fold increase since 2006), and Williams believes the figure will soon rise to over NZ$1bn.
A recent Mintel survey showed that 57% of Chinese mothers perceived products from Australia and New Zealand to be superior, compared to 32% who preferred Northern European products and 28% who preferred North American products.
The market intelligence agency further reported that the Chinese infant formula market would grow by 5.4% yearly to 2021, thanks to factors such as the higher income, ongoing urbanisation, and the one-child policy being relaxed.
Regulatory impact
Although China now permits infant formula imports from only 13 NZ-based manufacturers (a drastic decrease from a peak of approximately 200), New Zealand remains a major player in China’s infant formula market.
Approved NZ-based manufacturers include large firms like Fonterra, Nutricia and Synlait, as well as niche companies such as the Dairy Goat Co-operative and NIG Nutritionals, which specialise in infant formula made from goat’s milk.
Williams said, "Most of the large New Zealand dairy exporters are now registered to supply (to) China. Most are still yet to reach full processing capacity for their infant formula plants. This means there is more growth to come, with market demand forecast to grow and other competition being shut out by the new regulations.
"The whole purpose of new regulation is a smaller market that Chinese officials and institutions can more easily monitor and enforce compliance on. This favours the larger MNCs and ones vertically integrated through partnerships with Chinese companies."
He also mentioned the 'grey market', i.e., "the direct importation of foreign labelled infant formula products (particularly from Australia and New Zealand) by individuals via Internet platforms".
Industry players believe the grey market will shut down after new registration requirements take effect next year, limiting competition from unregistered smaller brands.
Professional advice
At present, between 30% and 35% of dairy products sold internationally are from New Zealand, which has long been a key supplier of base milk powder other companies use to manufacture infant formula.
Williams said being successfully registered would not be easy, since every formulation must undergo rigorous food safety testing.
"The process can take up to 12 months and requires a vast amount of documentation in the initial application. Chinese officials are also very particular about how it is presented. For example, every individual page needs to be stamped.
"To ease and speed up the process, partnerships with Chinese companies can help and might be viable option for smaller businesses."
Furthermore, the high cost of registration — which entails documentation, testing requirements and direct costs — will likely limit new competition.
Williams revealed: "Feedback from our customer base suggests the cost of achieving registration is close to NZ$2.5m per brand."
He added that children above the age of one would be an upcoming growth area, considering the strong push for Chinese mothers to breastfeed.
