Is It Possible for China to Centralize Infant Formula Procurement?

Recently, a hearsay¹ was circulating on social networks. It was said that on a teleconference hold by Firmus, a researcher from a well-known global company raised a question “Will China start to centralize infant formula procurement?” Although the authenticity of the saying was not confirmed and some also took it as a joke, this question still sparked heated discussion among stakeholders in China’s infant formula sector. Opinions are mainly divided into three groups. A few people think the government will adopt this measure to reduce the cost of raising a child in order to increase the number of newborns. However, many believe it is unlikely to centralize infant formula procurement in China since infant formula products are quite different from items like medicines. The remainders felt it’s hard to say, but they tend to believe it might be possible.

In regards to this question, experts also expounded their opinions. Song Liang, a senior dairy expert in China, stated that the government does intend to organize the purchase of infant formula products but only with a small quantity, which won’t impact the infant formula market. After further confirmation, Song told ChemLinked that such infant formula products would be distributed to remote area and mainly for vulnerable households.

ChemLinked also believes the government will not procure infant formula products in bulk due to following reasons.

First, infant formula is not the major deterrent to birth rate but the burden of housing and education cost is. Hence, it is understandable that the government has been releasing a series of housing policies recently and initiated a sudden heavy crackdown on private tutoring industry² several months ago. Netizens’ view on this crackdown is, “the government is taking the action to govern every factor that may deter couples from having children.” Dairy experts opined that the chaos of the tutoring industry did greatly influence the normal education environment and people’s household expenditure structure. Compared to housing and education costs, the cost of infant formula seems to account the smallest portion, which is far from being regarded as a “target”.

Second, although the average price of most infant formula is higher than that in other countries³, its price range is wide in China, which provides consumers with many options. Take products of 900g/can as an example, the price can be in the range of around 100 to over 400 yuan. Besides, along with consumers’ shifting preference towards cost-effective products, many enterprises began to lower the retail price of products (even high-end products⁴) through promotion activities, etc. Song expected the overall infant formula price will be reduced gradually. Hence, it seems unlikely that consumers in China cannot afford infant formula products. Even for people who live in remote areas with less income, many local governments have cooperated with social organizations⁵ to provide free infant formula products and products with less cost. 

Third, even if the government procured infant formula products in bulk which are at lower prices, ChemLinked assumes most consumers will still prefer to buy the brands they trust including high-end brands, due to their needs for high-quality products.

Fourth, compared to centralizing infant formula procurement, there are better and effective ways to encourage childbearing. For example, Panzhihua (a city in Sichuan Province) first issued the policy⁶ to offer subsidies to encourage families to have more children. Experts predict many other policies will be released subsequently nationwide.

At last, ChemLinked believes the government won’t procure infant formula in bulk because the infant formula industry in China is supported by huge industrial chain with hundreds of thousands of offline baby&mom stores. Once the government purchases infant formula in bulk, it will be a massive blow to the industry, which is also against the intention of China’s promotion plan for its domestic infant formula industry.

ChemLinked is preparing an exclusive interview with Song Liang, a senior dairy expert in China. Articles will be released soon. Stay tuned!