China’s Lactoferrin Dilemma: Undersupply & Overpricing

Lactoferrin prices in China have skyrocketed in the wake of implementation of China’s new national Lactoferrin standard last year, witnessing a several fold increase starting at 3,000RMB/Kg to now reaching 13,000RMB/KG. In 2017, China increased the stringency of Lactoferrin purity requirements from 90% to 95%. In practical terms the 5% increase represents a significant technical challenge for manufacturers and has forced many lower technical capacity manufacturers from the market, resulting in a significant decrease in overall supply and the accompanying increase in price.

At present, the limited number of Lactoferrin manufacturers capable of meeting the 95% purity standard are all from countries outside of China, including New Zealand Westland Milk Products, Synlait, Australia’s Tatura, France’s ARMO etc. The vast majority of American manufacturers (traditionally the world’s largest manufacturing hub) fail to meet China’s new purity requirements according to independent dairy analyst Wang Dingmian. In conjunction with this supply bottleneck, market forces are also impacting the price surge as Chinese parents tend to place a higher value on formula’s containing Lactoferrin which tend to categorize the product as a premium or ultra-premium product when used in conjunction with other ingredients like OPO.

The current market and regulatory conditions poses industry operating in China an interesting quandary without any particurly obvious solution in sight. On one hand the industry can simply choose to reformulate current products and remove Lactoferrin, however this could mean alienating existing consumer bases and would also require amendment of previous infant formula registration (a potentially time consuming, costly and complicated procedure). The other options would either have manufacturers reduce their profits by absorbing the increased costs themselves or alternatively pass these costs on to consumers which would be reflected in infant formulas with a higher price tag (hard to believe given the high retail price of many of China’s premium products).

Although it is unclear what strategy industry will ultimately decide to adopt to solve their current crisis it is certain that SMEs will be hardest hit. Larger manufacturers are much better placed to absorb costs and maintain their placement as a premium product. However SMEs already struggling with China’s beefed up regulatory requirements will find it difficult to absorb costs but will suffer greatly if forced to remove Lactoferrin from their products given that China’s markets are moving in the premium and ultra-premium direction.