China baby boom formulates a baby formula frenzy, but caution ahead

Posted by AFN Staff Writers on 2nd November 2015

babyOn Friday 30 October 2015, Australia’s leading complementary healthcare product-maker Blackmores and Australian dairy group Bega Cheese announced the two companies  would be teaming up to produce and sell infant formula for consumers in China.


The announcement comes at the same time as the Chinese government has revealed it is relaxing the one child per family policy. Allowing two children per family theoretically doubles China’s demand for infant formula.


Even before the Chinese government’s latest announcement, many of the world’s infant formula-makers have been doing nicely in China over the past few years on the back of Chinese consumer safety concerns. China has sought to alleviate such concerns with the introduction of tougher food safety regulations such as its New Food Safety Laws which were introduced in April 2015. 


The Chinese government has made a commitment to increase the breastfeeding rate in China to 50 per cent by 2020. A 2013 study revealed that only 30 per cent of Chinese women breastfeed. By comparison, a 2010 study found that at least 96 per cent of Australian women try breastfeeding and 39 per cent of babies are being exclusively breastfeed three months after birth.


The low rates of breastfeeding in China has been attributed to a lack of public nursing facilities and minimal maternity leave offered to mothers. 


In the past year healthcare products produced by Blackmores in Australia and New Zealand have acquired considerable popularity in China, largely through online sales generated by Chinese expatriates and tertiary students based temporarily in Australia and taking the opportunity to set up online shops on China’s internet retail platforms such as Alibaba’s T-mall.


As a consequence of this sudden increase in demand, Blackmore’s share price has skyrocketed over the past year, starting from about AUD$35.00 at the beginning of January 2015 to around AUD$200 last week, although currently listed at around AUD$170.00 as of 2 November 2015.


Warning bells


Dairy Reporter last week wrote online that the Chinese General Administration of Quality Supervision inspection and Quarantine issued draft legislation regarding online sales and imports into China.


The publication contacted a Chinese regulatory consultancy called REACH24H and its spokesperson said the draft signalled a tougher approach to regulatory enforcement for online purchases.
Until now, sales made online have been able to escape regulatory scrutiny and have not been properly labelled to the China regulatory requirements. However, the new regulation will require such online products to meet the same regulatory criteria as those coming into China through convention, non-online means. This threatens to have an enormous impact on the continuation of this ‘grey market’ of Australian-made infant formula products and complementary healthcare products being sold from Australia from online sellers buying up Australian product and reselling on the internet.