http://www.wsj.com/articles/chinese-head-to-the-web-to-feed-infants-1470157625
Business
Chinese Head to the Web to Buy Imported Baby Formula
Value of foreign-made infant formula rose 25% in the first half
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China’s demand for baby formula is helping buoy the international dairy sector. Here are the key numbers. Photo: Getty
By Lucy Craymer
Updated Aug. 2, 2016 2:41 p.m. ET
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China’s growing love affair with internet shopping is driving up sales of foreign baby formula.
The world’s largest importer brought in 25% more foreign-made infant formula by value in the first six months of this year than in the same period in 2015, according to China customs data. That increase followed a 42% rise in import value for the comparative 2014 period.
As of 2015, China made up about one-third of the world’s total infant-formula market, with imports valued at $2.47 billion annually, roughly three-quarters of which came from Europe. Prices for imported infant formula have stayed high, unlike prices in the broader dairy sector, whose products fell 5.4% per metric ton in the first half from the previous year.
A primary driver of the growth is Chinese consumers’ increasing ability to buy infant formula offshore through websites, as online shopping expands throughout China. New parents continue to want foreign products after years of scares involving tainted domestically produced infant formula in China.
The rise of these internet platforms is allowing parents from smaller cities in China, who previously had limited access to foreign formula markets, to buy offshore products, said Yujing Li, a senior analyst at Mintel Reports in China. That has lifted market penetration of foreign products.
Infant formula, which can be fed to older children as well, is made of milk, vitamins, minerals and other products such as whey-protein concentrate. The data are for dried infant formula imported ready for sale with less than 5% cocoa, according to customs’ definition.
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Online sales rose to about 22% of China’s infant-formula sales in 2015 from around 2% in 2010, according to a report from investment bank UBS, which said that urbanization and the increase in internet access could continue to drive online-sales growth of baby formula specifically.
Parents remain concerned about the safety of China-made products after a series of formula-related incidents: The worst, in 2008, resulted in six children dying and 300,000 falling ill because of locally produced formula tainted with the chemical melamine. As a result, many Chinese companies headed offshore to make products, and global companies are producing more formula outside of China to sell in the mainland to meet demand.
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“All my friends and relatives use imported milk powder when they have babies,” said Wu Dan, 27 years old, from Hai’an in Jiangsu province, who relies on friends traveling overseas to bring it home for her. “My baby is 8 months old, and I’ve been feeding him imported infant-milk powder since he was born. I’ve been to Germany before and I trust German brands.”
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Manufacturers—including the three largest competitors in the infant-formula sector: Nestlé SA, Mead Johnson Nutrition Co. and Danone SA —have embraced e-commerce channels such as Amazon.com and Chinese-language site Tmall in recent years.
Imports of baby formula made entirely beyond China’s borders represented 35% of Mead Johnson’s retail sales in China at the end of 2015, compared with just 5% in 2014, a spokesman for the company said. “In China, the ongoing shift in consumer demand for fully imported product may continue to negatively impact our locally manufactured brands,” the company said in its 2015 annual report.
China, however, clamped down on a tax loophole in April: Consumers now have to pay a value-added tax and a consumption-products tax on formula. This will result in a tax of 11.9% on offshore purchases of less than 500 yuan ($75.30), which were previously excluded. Furthermore, the government has introduced regulations to improve industry standards.
This is expected to hurt some buying by Chinese consumers and by small retailers planning to sell within China.
Because the coming changes were made public early, some of the uptick in sales at the start of the year could be related to stockpiling before the changes come into force, Ms. Li said.
‘All my friends and relatives use imported milk powder when they have babies.’
—Wu Dan, a mother of an 8-month-old baby
Also, Chinese retailers likely have been stocking up ahead of an expected increase in babies conceived during this year’s Year of the Monkey—one considered especially lucky—as well as a forecast for a small uptick in babies being born because of the relaxed one-child policy.
The birthrate was the lowest in five years in 2015, partly because Chinese don’t like to give birth in the Year of the Goat, resulting in Nestlé’s market growth slowing, said a spokeswoman. She estimated that the company’s infant-formula market growth to be “3% to 5%” this year.
An increase in breast-feeding by mothers is also weighing on growth, she said. The breast-feeding rate of newborns to 6-month-old babies is now at 59%, compared with 28% in 2008, according to the National Health and Family Planning Commission.
Yet, forecasts remain upbeat.
China’s total infant-formula market is forecast to more than double in the next five years to 246.3 billion yuan in 2020, according to Euromonitor International.
As long as Chinese parents perceive foreign brands as safer for their babies, they “will always be willing to spend top dollar” for them, said Gilliam Collinsworth Hamilton, who heads the Beijing office of investment bank North Square Blue Oak.
—Yifan Xie in Shanghai and Fanfan Wang and Liyan Qi in Beijing contributed to this article.
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Hi xyz, I'm just wondering why Chinese parents don't like to give birth in the year of the Goat.Is it considered unlucky? I'm also querying the breast feeding rate now being quoted at 59% according to the National Health and Family Planning Commission. According to some of the articles, the breast feeding rate was quoted at 28% between 2007-2014, and up until the end of last year,exclusively breast feeding rates in China were considered to be low. I'm wondering if the 59% is representative of mothers trying, or encouraged to breast feed while they are in the hospital environment, as there had been a push on to encourage breast feeding in the country, however, breast feeding rates can drop off after a little while if there are any particular pressures or difficulties with feeding at home. And infant formula supplementation may be required while still breastfeeding. I'm not sure the 59% figure is accurate? There will also be a percentage of women giving birth over age 35, and some will be having their babies as a result of IVF. Taking these factors into account, the forecasts do remain upbeat.
(20min delay)