Guest Article

The Chinese formula market is still full of opportunities – as long as you focus on quality

By Sigalit Zchut, Ph.D, MBA, chief scientist at Advanced Lipids

- Last updated on GMT

Changes to Chinese infant formula regulations affect the number of products on the market.
Changes to Chinese infant formula regulations affect the number of products on the market.
If you had to name the point when everything changed for China’s infant formula market, it would be June 2016.

On the first day of that month, the state body that controls product accreditation updated the list of registered imported infant formula producers, suspending some big names in the process. 1

The following week, the country’s Food and Drug Administration (CFDA) released the long-awaited Regulations on the Administration for Infant Formula. Every enterprise, wherever based, would be limited to three brands (one for each of three age ranges) and nine formulations.

The new rules affect domestic and overseas formula companies alike. 

Product numbers will decline

Manufacturers and brand owners, both from China and overseas, have been deeply involved with the new registration process in an attempt to have their three brands approved before the new rules are enforced. There are currently thousands of different infant formula brands operating in the country, but the number is expected to fall sharply. 2

However, recent signs should give overseas manufacturers cause for optimism.  The CFDA has just announced the first wave of companies to pass its new registration program.

Around 400 infant formula products have been approved, around 50 of which are made by overseas companies. 

Meanwhile, Australian company A2 Milk, which is confident of winning approval, has announced that that its net profits for the first half of 2017 have roughly tripled, driven in part by demand for formula in China.

Baby boom

This is partly because of the extremely favorable demographic backdrop that has helped make China’s formula market the biggest in the world.

Last year the country’s decades-old single child policy became a two-child policy, sparking a mini baby boom.  We expect this to lead to further growth.

The key to success in the reformed Chinese market is to stay focused on quality.  Firstly, there is new emphasis on standards and scientifically substantiated differentiation. Companies applying for registration have to be able to prove claims they make on their labels, and nutritional composition must be listed in accordance with national safety standards. Exaggerated or non-scientific statements about health benefits are not allowed. 3

Secondly, China’s increasingly sophisticated consumers value quality very highly.  The super-premium segment is growing: in 2013, it accounted for 14% of the formula sold in Chinese baby specialty stores. By 2014 that had grown to 18%. 4

Price is considered an important driver of product choice by only 17% of consumers, and ranks lower even than considerations such as place of origin, raw materials and taste. The two most important factors driving product choice are health benefits and safety. 5

Importance of ingredients

All of this points to the importance of including high-quality ingredients in infant formula sold in China.

An example is SN2-palmitate, also known as OPO, which has been clinically proven to be different from standard vegetable oil.  It offers a range of benefits for infants and their parents.

In a tougher market, where quality is not only sought by consumers but also demanded by authorities, the inclusion of ingredients such as OPO can be an important key to success.

 

Sigalit Zchut, Ph.D, MBA, is chief scientist at Advanced Lipids, a joint venture of AAK and Enzymotec. AAK is a global producer and supplier of vegetable fats and oils for the infant formula industry.

1 Dairy Product China News, Vol 9 Issue 6, 2016
2 E-Share Industrial Info Centre, ‘80 percent of infant formula brands to be eliminated in China’ http://eshare.cnchemicals.com/publishing/home/2016/06/16/2080/80-percent-of-infant-formula-brands-to-be-eliminated-in-china.html
3 Dairy Product China News, Vol 9 Issue 6, 2016
4 Synutra, International Investor presentation, May, 2015
5 CBME China Children Baby Maternity Products Industry Consumer Research Report 2014, October 2014 

Related topics: Emerging Markets, Ingredients, Nutritionals

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