Overseas Coronavirus Outbreak Affecting China’s Infant Formula Market

Recently, the World Health Organization (WHO) declared covid-19 a "global pandemic." According to the data available at the time of publishing this article, the total confirmed cases outside China have exceeded 160,000. Outside of China, the pandemic is accelerating, especially in Europe, where the number of confirmed cases has surged in recent days to 107,899.

Top 5 overseas countries by confirmed number (Updated on March 20)

Europe is China's largest source of infant formula imports and is also one of the most active regions for Chinese Daigou. It has many well-known brands that are highly demanded by Chinese consumers, including Nestlé, Wyeth, Aptamil, Nutrilon, Friso, Arla, etc.

According to customs data, China imported 345,500 tons of infant formula in 2019, with 71.6% from Europe ^[1]. Up to now, 56 European infant formula manufacturers have been registered in China, including 13 from France, 12 from the Netherlands, six from Germany, four from Ireland, four from Spain, three from Denmark, and two from Italy, Finland, Switzerland, and Poland ^[2].

The increasingly difficult situation overseas is expected to bring some changes to China’s infant formula market because of quarantine measures, production issues, and interrupted logistics. Opportunities and risks intermingle both for domestic and foreign brands.

For domestic enterprises

Opportunity - Domestic infant formula brands gain a competitive advantage in expanding market shares.

Because of coronavirus, Daigou and direct mail business have been affected because of airline cuts and purchase restrictions. In 2019, Daigou and cross-border trade accounted for about 20% of China’s 80 billion yuan infant formula market ^[3]. The global pandemic will also lead to a sharp fall in imports of infant formula in the first quarter. Stagnation of Daigou, extended transportation time, together with reduced imports, will force many consumers to turn to domestic brands. This is an excellent opportunity for local brands to gain recognition and trust.

Risk - Domestic infant formula production may be affected due to obstructed raw material imports.

At present, domestic infant formula production still relies on imports of raw materials. Once the overseas epidemic situation becomes worse, and the supply is blocked, the output of domestic infant formula will suffer a lot. For example, Blue River Dairy revealed the global resources of D90 desalinated whey powder, especially goat whey powder, are becoming scarce.

For overseas enterprises

Opportunity - Major European brands’ official crossborder channel sales growing.

Although the outbreak has hit Daigou hard, it is a growth opportunity for official cross-border channels. In February, FrieslandCampina's official cross-border channel sales increased 1.5 times from a year earlier. The main reason for this was the disruption to daigou supply chains. 

Risk - Overseas brands are at risk of losing market shares.

If the epidemic cannot be effectively controlled, overseas brands are going to face a hard situation in the Chinese market because of reduced exports and rising prices.

First, as the epidemic continues spreading, infant formula production capacity and circulation will be affected. The closure of some international logistics channels will hinder infant formula exports. The widespread outbreak overseas has also triggered panic buying. Many overseas mothers began to stock up on infant formula, which gave rise to a reduced export quota.

The impact on logistics is also reflected in rising transportation costs. Shipping prices from Rotterdam to Shanghai were up 24% from a week earlier as of March 8, according to the latest data from Drewry. This will lead to the price fluctuation of some European infant milk brands and therefore affect the sales in the Chinese market to some extent.

Overseas enterprises’ responses

According to the responses of some major overseas infant formula companies, the supply in the Chinese market has not been affected yet despite the outbreak spread.

Danone: Infant formula products are normally available in the Chinese market and have not been affected by COVID-19. We will stay vigilant and closely follow the situation and work closely with overseas factories to ensure the supply of our products.

FrieslandCampina: At present, our company is in normal operation, including pasture, production, supply chain, and logistics. In response to the outbreak, we have more intensive preventive measures and management.

Arla: we have put in place additional epidemic prevention and control measures from the beginning to ensure that business is sustainable.

Nestlé: It is too early to quantify the economic impact of the outbreak. Nestlé stands with the Chinese people and works to ensure the wide availability of nutritious food and beverages, especially for the youngest and oldest.

Ausnutria (overseas plants): At present, the outbreak outside China will not have a significant impact on the normal production and operation of the company.