More Babies in China, More Customers for U.S. Dairy?

November 5, 2015 08:54 AM
 
China

by Mark O'Keefe, U.S. Dairy Export Council

When public relations executive Charles Shen and his wife wanted a second child in China, they had to pay a $50,000 penalty.

“In China, we have a saying, calling baby girl ‘qian jin xiao jie’ (lady worth thousand dollars)," Shen said, adding that it prompts him to tease his five-year-old daughter Helena that she is his "$50,000 girl.”

Now that China has ended its one-child policy, allowing parents to have two children, there will be a lot more Helenas out there―prime consumers for imported dairy products. But it will take time for the full effect.

China

An estimated one to two million more babies a year

“After China ends the one-child policy, there will be one to two million additional newborn babies a year,” said Daniel Chan, China-based representative for the U.S. Dairy Export Council. “Dairy consumption is certainly expected to rise with the increased number of babies.”

The current demand for infant formula milk powder is about 700,000 metric tons a year.

According to the China Dairy Industry Association, the additional demand for newborn babies will be about 140,000 metric tons a year when the new policy is fully implemented, a 20 percent increase, Chan said.

It’s not yet known how long it will take for the Chinese government to phase in the new policy.

During the first nine months of this year, the imports of infant formula milk powder to China increased 33.1% compared to the same period the year before, Chan points out. Part of the increase may be attributable to a partial relaxation of the one-child policy in 2013.

An increasing child population in China is good for dairy in general because children are the main consumers of dairy in the country, said Ross Christieson, senior vice president of market research and analysis at the U.S. Dairy Export Council.

“Indeed, many of the new-style dairy products that will be introduced in the next five years or so will be targeted at children,” he said.  “An example of this is cheese where the major dairies are not only looking at foodservice growth, but a number of them are developing children’s cheese snacking-type products.”

There is reason for caution. China’s change in policy may not create an overnight explosion of newborn babies because:

  • Following relaxation of the one-child policy for some married couples in 2013, the newborn population didn’t rise as much as some analysts thought it would
  • Children can be expensive to raise, deterring parents from increasing the size of their families 
  • Older children, used to being the center of a family's attention, may object to a smaller sibling

There will be strong competition for the United States from other dairy-exporting countries focusing on Chinese children.

What's more, China may increase its own domestic production to meet added demand. For example, just four days after the recent announcement on the one-child policy, the China Dairy Corporation said it wants to build a milk production factory and laboratory. The chairman of China Dairy Corporation, Enjia Liu, said in a letter contained in the China Dairy prospectus that the company wants to "develop a new business stream to produce processed liquid milk targeted at children."

A potential boost for UHT milk sales

Having more children could further accelerate sales of ultra-high temperature (UHT) pasteurized milk to China.

UHT milk imports in China have surged in recent years. According to a USDEC research report and recent updates, those imports rose from 8,668 metric tons in 2010 to 287,000 metric tons in 2014.

Imported UHT milk typically costs two to three times more than domestically produced milk, but many Chinese consumers are willing to pay higher prices for the safety and high quality that imported UHT milk offers—especially as it pertains to the nutrition of their children.

 

Chinese parents want safety, consistency, reliability

That point is echoed by Jay Waldvogel, senior vice president of strategy and international development at Dairy Farmers of America, the nation’s largest dairy cooperative and recipient of the 2014 Tom Camerlo Exporter of the Year Award.

When people start earning more money, as is the case with the growing middle class in China, they often spend more on improved nutrition for their children. Said Waldvogel: “The first thing a mom wants to buy in China is a glass of milk for her kid."

“The place in the world best positioned to fill that glass of milk in the future is the United States," Waldvogel said.

Chan agreed. The U.S. dairy industry "is promoted as a source of quality products and ingredients that offer unparalleled safety records, as well as consistency and reliability due to the technology and scale of the industry,” Chan said.

For parents like Charles Shen, safety, consistency and reliability is what it’s all about.

Consider the lengths Shen went to to provide good dairy-related nutrition for his daughter.

“I remember before she turned four, I had to travel all the way to the U.S., making whirlwind trips to Target, Safeway and pharmacies for authentic, quality -- and most importantly -- safe branded U.S. baby formulas,” says Shen, who works at a public relations firm that has the U.S. Dairy Export Council as a client. “Sometimes I was challenging myself whether we need to transport baby formulas into China, but reality told me trust is yet to be established between Chinese consumers and its home-grown brands or even foreign brands manufactured in China.”

While many parents in China won’t be traveling directly to the U.S. for their dairy products, like Shen did, the desire remains to provide the best possible nutrition for their children. With millions more children in China expected after the lifting of the one-child policy, that parental desire may faciliate a growing, long-term opportunity for U.S. dairy exporters. 

 

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