Why is Asia demanding so much baby formula?

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UK consumer goods giant Reckitt Benckiser is betting big on Asia’s growing thirst for infant formula.

Getting more sales in that region was a major reason it gave for Thursday’s $16.7bn (￡13.3bn) bid for US firm Mead Johnson – the world’s second-biggest maker of the product.

Baby milk formula is big business. Globally sales were worth $41bn in 2014, according to Euromonitor.

And Asia is comfortably the fastest-growing market. But why?

Chinese baby bonanza

China’s 2015 decision toscrap its one-child policyhas huge implications not just for demographics, but for consumer-oriented businesses such as Reckitt and Mead.

Couples are now allowed to have two children after concerns about China’s ageing population led the government to reverse the decades-long rule.

Last year, China’s birth rate was the highest this century, with the number of newbornsrising by 7.9%, or 17.86 million, on 2015.

As a result of this baby boom, analysts expect demand for food, formula, clothes and medicines to skyrocket.

“Two children rather than one means twice as many feeds, twice the number of disinfectant wipes and twice as many dishes to wash,” David Kuo, chief executive of the Motley Fool in Singapore said.

However, changes to import rules will require the industry to adjust – withsome producers warning that’ll have an impact on sales in the short term.

Cultural mindsets also play a part. Long-term breastfeeding is rare among Chinese mothers, who often doubt the quality of their breast milk.

Women and work

Aside from China, there has also been a spurt in demand for infant formula from South East Asia.

Countries like Indonesia and Vietnam are rapidly industrialising and have young populations that will see millions of mothers enter the workforce in the coming years. As that occurs, breastfeeding is likely to get displaced by formula feeding.

In a study published last year in the Public Health Nutrition Journal, lead researcher Dr Phillip Baker from Australian National University described the trend as “potentially the largest shift in infant and young child nutrition on record”.

He added: “Paid employment is a very good thing for families, especially those living on the bread line. The problem is that without paid parental leave or family friendly workplaces, breastfeeding can be very difficult or even impossible.”

Safety concerns

It’s been nearly a decade sinceChina’s tainted milk scandal. But the fears linger on.

Six infants died and hundreds of thousands fell ill in 2008 after drinking formula containing melamine.

That incident, combined with a regular stream of food safety crises and pollution problems, have led Western brands to be perceived as safer than locally produced products.

“Everybody is cautious and that’s why in general imported food sales are skyrocketing primarily through e-commerce,” Shaun Rein from the China Market Research Group told the BBC.

“The local brands that do well buy their formula overseas – usually sourced from Australia or New Zealand – and bring it back to China to package here.”

It is not uncommon to see Chinese buyers regularly buying up huge amounts of infant formula from abroad, a practice that has helped spur the rise of parallel traders and’daigou’ or freelance retail consultants.

In fact, the situation got so serious global restrictions were put in place, with retailers in the UK and elsewhererationing the salesof baby milk formula in in 2013.

The winner in all of this? Producers such as Mead Johnson – which garner about half of their sales in Asia.

Source: BBC News

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