New China infant formula rules finally introduced, global firms seeking much-needed stability

In June 2016 the country’s Food and Drug Administration (CFDA) released the long-awaited Regulations on the Administration for Infant Formula.

It stated that every firm – both national and global - would be limited to three brands (one for each of three age ranges) and nine formulations.

More than 400 products have been approved, with around 60 from international companies.

Officials say unapproved formulas on the shelves can be sold until their expiry dates, to minimise the risk of product shortages in the coming weeks.

The new rules come into force after the market for overseas products witnessed significant growth over the past decade following 2008’s melamine scandal, which affected more than 300,000 babies.

Around one-third of China’s annual demand of a million tonnes of infant formula comes from overseas, with products from Australia and New Zealand in particularly high demand.

Exports from New Zealand alone are tipped to top NZ$1bn for the first time. A 40% increase on 2010.

Sales slips

But sales and profits for many firms stuttered after the new rules were announced, while others were affected by market jitters amid fears they may not get the new registration.

Major players such as Nestle and Danone reported sales slips as domestic manufacturers – many of which had multiple brands – heavily discounted prices to off-load inventory before the new rules came into force.

Meanwhile, a proposed ‘Bemore’ China joint venture between supplements giant Blackmores and dairy outfit Bega Cheese was scrapped due to “changing market circumstances”.​ It is understood Blackmores is now seeking to secure CFDA registration for its own brand products.

Australian manufacturer Bellamy’s also experienced significant turbulence​ after the new rules were announced.

However, those international firms now on the approved list will be hoping the implementation of the new rules will lead to the market stabilising. Analysts are predicting that the reduction in the number of products will be beneficial to international companies, because it will reduce the visibility of domestic companies which had flooded the shelves with multiple brands.

Furthermore, demand for infant formula products in the country is forecast to continue to grow, with Mintel predicting a CAGR of 5.4% between 2016 and 2021.

The market intelligence agency further reported that the sector would benefit from factors such as higher incomes, ongoing urbanisation, and the one-child policy being relaxed.