Shortage of Chinese babies sparks warning for powdered milk market

Goldman Sachs has warned investors to look forward to five years of zero growth in the global baby milk powder market because China is approaching a critical demographic tipping point and the world’s most important market will suffer from shortages. new babies.

Chinese babies, whose consumption of formula milk has increased in recent decades thanks to rising incomes for China’s middle class, have become the most important source of growth for an industry dominated by companies such as Danone, Reckitt and Abbott Laboratories.

However, in a report distributed to clients this month, the U.S. investment bank said its outlook on the powdered milk sector was now negative, in light of its new forecast that the Chinese child population would decline by an average of 7% per year. year for the next five years.

The same forecast points to the possibility that, by the end of 2022, the number of deaths could exceed that of births, putting China in population decline – a point that Japan reached in 2016, and which could trigger significant revisions in the models. economical in use.

Earlier this year, wrote John Ennis, an analyst at Goldman Sachs, the bank had predicted a rather moderate drop in China’s child population. It now anticipates that new births in 2022 will drop 12% from the previous year, and a further 5% drop in 2023.

This means the infant population in 2023 could be up to 45% smaller than it was in 2016, Ennis said. The baby milk powder market could see an 8% decline this year in China, and further declines at a compound rate of 4% annually over the next five years, he added.

The predicted contraction in China’s child population may be a contrast to markets like the United States, where the population is stabilizing, but Goldman Sachs argued that the overall picture, including Western Europe, is poor.

International groups such as Nestlé, Danone, A2 Milk and Abbott would have generally underperformed, the report predicted, and the situation is likely to create opportunities for local Chinese companies Feihe and Yili to gain share.

“We don’t anticipate the market to offer much growth, which is a stark contrast to the industry’s previous growth credentials over the previous decade, when average sales growth was around 5% per year,” Ennis wrote.

The report deals a blow to the Chinese government of President Xi Jinping, which has implemented sweeping reviews of the country’s policies in an effort to reverse the deteriorating demographic picture.

After years of relentless enforcement of the one-child-per-couple policy — with measures that included sterilization, contraception and forced abortions — Beijing famously lifted prohibitive restrictions on procreation, and in 2015 officially authorized all couples to have up to two children.

Chinese authorities, like their counterparts in Seoul and Tokyo, are also testing stimulus measures aimed at easing the financial burden faced by women who have children, such as longer maternity leave and more expansive child care, as well as subsidies for those who have children. have more than one child.

Last year, Xi introduced a “common prosperity” policy aimed, in part, at easing pressures on families to halt population decline.

But birth rates in China have remained among the lowest in the world. As economic pressures mount, marriages have fallen to their lowest point in four decades, while youth unemployment, which is above 19%, is at its highest level in recent history, further reducing Xi’s chances of getting married. fight the problem.

Translation by Paulo Migliacci