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Infant inflection: zero growth warning for global milk formula market

by Ozva Admin

Goldman Sachs has warned investors to expect five years of zero growth in the global infant formula market as China approaches a critical demographic tipping point and the world’s largest market runs out of new babies.

Chinese babies, whose consumption of high-end formula has risen in recent decades thanks to their parents’ rising middle-class incomes, had become the most important source of growth for a sector dominated by the likes of Danone, Reckitt and Abbott Laboratories.

However, in a report circulated among clients this week, the US investment bank said it had turned negative on the formula industry in light of its new forecast that Porcelain‘s child population would decline at an average of 7 percent per year over the next five years.

The same forecast raised the possibility that by the end of 2022, deaths will outnumber births, putting China in population decline — a point approved by Japan in 2016, and which can trigger significant revisions of economic models.

Earlier this year, Goldman analyst John Ennis wrote, the bank had anticipated a fairly modest drop in the Chinese baby population. Now, he expects new births in 2022 to have fallen 12 per cent from the previous year and to decline a further 5 per cent in 2023.

This means that the child population in 2023 could be 45 percent lower than the 2016 level, Ennis said. China’s infant formula market could see an 8 percent drop this year, before racking up 4 percent declines over the next five years, she added.

The forecast contraction of China’s baby population may contrast with markets like the US, where the population is leveling off, but Goldman argued that the overall picture, including Western Europe, is poor.

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

“We don’t expect the market to deliver much growth, which is in contrast to this market’s previous growth credentials over the past decade, when average sales growth was around 5 percent per year,” Ennis wrote.

The report represents a blow to the Chinese government of President Xi Jinping, which has implemented sweeping political reforms in an effort to turn the country around. deterioration of the demographic image.

After years of ruthless enforcement of the one-child policy, including forced sterilization, contraception and abortions, Beijing has notably lifted prohibitive birth restrictions, including in 2015 officially allowing all couples to have two children.

Chinese officials, like their counterparts in Seoul and Tokyo, are also experimenting with incentives aimed at easing the financial burden faced by women who have children, such as longer maternity leave and more extensive childcare, as well as subsidies for those who have more than one child.

Last year, Xi introduced a banner policy of “common prosperity” that sought in part to ease 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, at more than 19 percent, is at its highest level in recent history, further reducing Xi’s chances of combating the problem.

Additional information from Maiqi Ding in Beijing

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