According to Dairy Products China News issued by CCM in December 2013, China will relax its one-child policy, allowing couples to have two children if just one of the parents is a single child, according to a key decision approved at the Third Plenary Session of the 18th Communist Party of China Central Committee on 15 November. This policy shift is expected to lead to more newborns, so the infant formula industry will benefit from this.
The timetable for implementation of the policy has not been fixed, the document just saying that it would gradually adjust and improve family planning policy to balance the population number in China.
China’s family planning policy was first introduced in the late 1970s to control the surging population by limiting most urban couples to one child (some provinces allowed a second child if couples were both single children) and most rural couples to two children (if the first child was a girl).
The changes in policy have aroused people’s attention. Many internet users have welcomed the change, though others have said they would think twice about having a second child because of high living costs. Listed companies involved in mother and child supplies have seen a surge in their shares – Yili, Beingmate and Xinjiang Western Animal Husbandry Co., Ltd., (a recent entrant to the infant formula market) all saw their shares rise significantly on 18 November but fall back on the next day.
China saw 16.35 million births in 2012, and population experts estimate that the policy shift will add 1 to 2 million more to the annual total in the next 2 years. Various observers have suggested that the impact will be an additional RMB6 billion of sales every year from 2015, or an increase in sales for the industry of 20-30% (sales of infant formula reached about RMB55 billion in 2012).
The extra sales are expected to occur particularly for domestic brands of infant formula. The new policy will especially encourage more second children in 3rd and 4th tier cities, as in 1st and 2nd tier cities many couples are less willing to have a second child due to economic pressures and because the traditional perception in China that “more children is better” has weakened there more than elsewhere. It is evident that the multinational brands are typically much stronger in the latter cities (on the basis of this data, only 16% of their sales are in 3rd/4th tier) whereas domestic brands hold higher shares in the 3rd and 4th tier cities (which make up 55% of their sales).
However, some industry experts take a conservative view of the new policy’s impact, based principally on several areas of uncertainty. Firstly, no timetable for implementation of the new policy has been fixed. According to the National Health and Family Planning Commission (NHFPC), the central government will not set a confirmed timetable for the provinces and local governments will determine the timing according to what they judge to be practical locally. This means that it is possible in theory that only some provinces will fully implement this new policy in the future, with others holding back from doing so. Additionally, many couples seem to be concerned about the high cost of child-rearing: several surveys on this topic conducted by the NHFPC have suggested that 60% of the respondents on average are willing to have a second child if the policy permits. As a result, the increased number of newborns is uncertain, so the infant formula industry will be wise to take a conservative view of the prospects offered by this policy change.
Table of Contents of Dairy Products China News 1311:
Cheese Market Growth
Domestic Dairy Processors Raise Product Prices
Revised Draft of Food Safety Law Announced
One-Child Policy Shift Benefits Infant Formula Industry
YST Launches IPO
Tingyi and Wakodo to Form JV
Meiji Dairies Targets Fresh Milk and Yoghurt
New Hope Dairy Re-enters Infant Formula Market
Synutra to Acquire YouthbaseBeingmate Diversifies into Children’s Milk Market
Beingmate Diversifies into Children’s Milk Market
Guangda Group to Expand Milk Supply
Vitasoy Launches Grain Milk
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