Infant Discharge: A Warning of Zero Growth in the Global Milk Formula Market
Goldman Sachs warned investors to expect zero growth for five years in the global market for infant formula, as China approaches a critical demographic inflection point and the world’s most important market suffers from a shortage of new babies.
Chinese babies, whose consumption of high-quality formula has increased in recent decades thanks to the rising incomes of their parents’ middle class, have become the most important source of growth for a sector dominated by companies like Danone, Reckitt and Abbott Laboratories.
However, in a report distributed to clients this week, the US investment bank said it has turned negative toward the formula industry in light of its new forecast that the number of babies in China will decline at an average rate of 7 percent per year over the next five years.
The same predictions raised the possibility that by the end of 2022, deaths could outnumber births, putting China in a declining population — a point Japan passed in 2016, which could lead to major revisions to economic modelling.
Earlier this year, Goldman analyst John Innes wrote, the bank expected a fairly moderate decline in the number of Chinese children. Now, you expect newborns in 2022 to be 12 percent down from the previous year, and to be down another 5 percent in 2023.
This means that the number of babies in 2023 could be about 45 percent lower than the 2016 level, Ennis said, adding that the Chinese infant formula market could see an 8 percent decline this year, before doubling by 4 percent over the years. the next five.
The projected contraction of the number of children in China may contrast with markets such as the United States, where the population is stabilizing, but Goldman argued that the overall picture, including in Western Europe, is weak.
The report predicted that the performance of international groups such as Nestlé, Danone, A2 Milk and Abbott will be weak overall, while the situation is likely to create opportunities for local Chinese companies Feihe and Yili to gain market share.
“We do not expect the market to present significant growth, which is a stark comparison to the previous growth potential of this market over the past decade, when sales growth averaged around 5 percent per year,” Ennis wrote.
The report is a blow to the Chinese government under President Xi Jinping, which has implemented sweeping policy reforms in an attempt to reverse the country’s deteriorating demographic picture.
After years of harsh enforcement of the one-child policy — including forced sterilization, contraception, and abortion — Beijing has privately abolished birth restrictions, including in 2015 officially allowing all couples to have two children.
Chinese officials, as with their counterparts in Seoul and Tokyo, are also experimenting with incentives aimed at easing the financial burden women with children face, such as longer maternity leave and more extensive childcare, as well as subsidies for those with more than one child.
Last year, Xi introduced the “common prosperity” banner policy that sought in part to ease pressures on families to stem population decline.
But China’s birth rates remain among the lowest in the world. As economic pressures mount, marriages have fallen to their lowest level in four decades, while youth unemployment, at more than 19 percent, has reached its highest levels in recent history, denting Xi’s chances of fighting the problem.
Additional reporting by Mikey Ding in Beijing