China Releases the First Batch of Registered Infant Formula Produced Under the New GB Standards

Background:

On March 18, 2021, three new national food safety standards for infants formula (IF) were published by China’s authority, which will be effective starting from Feb 22, 2023. During the 2-year grace period, it is encouraged to follow the new requirements, and products produced before the implementation date are still allowed to be sold within its shelf life. All you should know about the new infant formula standards and supervision measures can be found here.

As revealed by the notice released on March 2, 2022, six infant formula products produced under new GB standards were granted formula registration approvals. Among the six products, three are from Junlebao and the rest are from Yili Group.

Up until the release of this article, the registration information of the six products has not been added to the “Query Platform for Special Foods” (a database set up by China’s SAMR) yet due to the update lag. But we can find more details from the Wechat Official Accounts of the two involved companies. According to Junlebao, the three involved products are all from a series called “Qizhi”. Besides satisfying the requirements raised in the GB standards, Junlebao optimized the addition amount of lactoferrin and added lactulose as well as prebiotics into the updated recipes. In 2021, the sales amount of Qizhi series increased by 30% than the previous year. Disclosed by Junlebao, this series enjoys a brand loyalty rate of over 72%. The other three involved products of Yili Group are from a series called “Beiguan”. According to Yili Group, fresh A2 raw milk is used as the raw material in the updated recipe, added with nutrients like lactoferrin, probiotic, DHA, ARA, etc.

The release of this notice is a good news to stakeholders since we all know the infant formula market in China is under pressure at this stage. At least, the review work of new recipes produced under the new GB standards goes well and stakeholders can look forward to the approval of their applications.

Shrinking Demand for Infant Formula in China and Increasing Acquisition Transactions

How’s the current infant formula market? According to Euromonitor data, although infant formula’s market size keeps increasing in China, its growth rate dropped continuously, from 8.88% in 2018 to 4.38% in 2020. Based on declining birth rate and China’s pro-natalist policies, Song Liang, a dairy expert, predicted that “the market size of infant formula will gradually decline and then remain stable at a certain level. To be specific, the infant formula market is worth around 100 billion CNY in 2019, then it may drop to 80 billion CNY in 2021 and remain stable at around 85 billion CNY as of 2025.”

As the market is totally saturated, the shrinking market size means increasingly fierce competition. During the recent five years, China’s infant formula market is more and more centralized. At present, the market share of top 10 enterprises occupied more than 70%. ChemLinked assumes that the fully implementation of the new GB standards in 2023 will become the last straw for small and medium enterprises (SMEs). On the one hand, due to the relatively weak processing technique and research & development capacity, it is difficult for SMEs to get new approval under the new GB standards, which raised stringent requirements toward recipe and production. On the other hand, squeezed by infant formula giants, it is harder for SMEs to compete with the giants and to get a share in this saturated market.

Hence, under this circumstance, it is easy to understand why the market has seen so many cooperation events and acquisition transactions in recent years. Even in the first three months of 2022, three dairy giants have started their actions.

It is reported that Mead Johnson China acquired Milk Goat in February 2022. Up until now, the two companies did not reveal any further details.
In March 2022, Danone reached a strategic cooperation with a Chinese company called Eurbest. 95% of Eurbest are owned by Danone Asia Pacific Holdings Pte. Ltd.
On March 3, 2022, Yili released a notice and announced to acquire all the issued shares of Ausnutria Dairy Corporation Ltd (which is a leader brand in goat infant formula and nutrition sector). Yili explained that after the acquisition, its current business layout, supply chain and sales channels will be further fortified. Industry insiders analyzed, this acquisition will greatly help Yili Group achieve its goal in 2025, which is to become one of the top 3 dairy enterprises in the world.

For SMEs, they can choose to extricate themselves from this fierce market in this way before their sales performance gets worse. For giants, the most valuable thing for them is they can earn more quota for recipe registration. It is because according to the regulation in China, each enterprise in principle shall not have more than 3 series of infant formula with 9 product recipes. More enterprises means the production of more series. Some may also get the resources to enter new segment, such as goat infant formula market, etc. Due to the fierce competition, ChemLinked believes acquisition transactions will keep increasing in the foreseeable future and the industry will be more centralized.

ChemLinked Service

With rich project experience, ChemLinked is an expert in conducting market research of Chinese consumers, including the investigation of their consumption behavior, etc.
Besides regulatory consultation, we also provide the service for infant formula recipe registration and GACC food manufacturer registration.
“Query Platform for Special Foods” is a database established by China’s State Administration for Market Regulation (SAMR), where the public can find the registration information of infant formula and foods for special medical purpose. ChemLinked provided the English list of all registered recipes.

If you are interested in ChemLinked service, please email [email protected] for details.