Infant formula makers like a2 Milk could benefit from a forecast short-term lift in China's birth rate.
Infant formula makers like a2 Milk could benefit from a forecast short-term lift in China's birth rate.
Listed dairy nutritionals exporter a2 Milk has the chance to cash in on a strong “catch up” in Chinese marriages and births in the next couple of years, says a senior research analyst who just returned from China.
Oyvinn Rimmer of Harbour Asset Management met Chinese dairy consumers,including focus groups of young Chinese women and mothers and the a2 team based in New Zealand’s biggest dairy export market.
NZX and ASX dual-listed a2 Milk exports branded infant and child milk formula to China, along with air-freighted branded fresh milk and milk powder directly from New Zealand and Australia.
Rimmer said when interviewing young Chinese women about their dairy choices, it was clear New Zealand milk was perceived as the best in the world, that the a2 brand had the strongest connection and credibility, and was the fastest-growing category of infant milk.
“We got to interview them quite candidly about their preferences for various products they feed their babies. We wanted to get a sense now they’ve come out of Covid (restrictions) and whether now was a good time to have a family or not,” said Rimmer who visits China annually as part of his market research.
“I’m thinking in 2024 and 2025 we are in all likelihood going to see a reasonable lift in births. Most of that I would attribute to the Covid hiatus where there were three years of very, very low births, much lower than you would normally expect.
“People were feeling really uncertain, they didn’t want to bring a child into this world, as well as having concerns around vaccines having potential negative effects on the fetus, to (concerns) just about marriage.
“There’s a very strong correlation between marriages in China and subsequent births. They get married and 12 months later the newborn follows. For three years very few got married because wedding venues were closed due to Covid,” Rimmer said.
“Now there’s been a strong catchup and there should be an increase in short-term births on the back of that. Structurally, it feels like once the catchup is done by late 2025 it’s going to continue to trend down again.
”So short-term, there is a window of opportunity for the likes of a2 Milk to capitalise on these newborns. That will come in the next 12 to 18 months.”
Rimmer also noted the opportunity in Chinese mothers feeding their children formulated milk through to adulthood, believing it was better for a child’s cognitive and physical development.
Chinese mothers believe it's best to feed formulated milk through to young adulthood, says Harbour Asset Management analyst Oyvinn Rimmer.
His belief the birth rate would taper off again was based on China’s demographic profile, which is “locked in” for the next 30 to 40 years, he said.
“Demographics is one of the easiest variables to forecast. And there’s the decline in the number of women of childbearing age ...and there’s been a decline in the fertility rate per woman of childbearing age.”
“Each woman has fewer children and so it compounds negatively, but it’s so low at the moment that we’ll probably reach a point pretty soon where it starts to stabilise.”
Rather than declining by hundreds of thousands of births every year, it starts to flatline.
“But there’s nothing in the data suggesting we are going to see a sustained improvement in Chinese births unless there’s a change in the fertility rate, which is going to require monumental policies and policy support to shift the minds of young Chinese to have more babies,” Rimmer said.
More generally, Rimmer said, “It’s still pretty tough for the Chinese consumer overall.
“They’re still coming to grips with the long-term implications of the demographic challenges with a shrinking population. And that goes into a whole lot of other aspects, (such as) with property prices coming under pressure. They don’t need to build as much anymore.
“They’ve also had four decades of a one-child (permitted) policy. So there’s a cultural element now, where the family unit has been accustomed to having one child.
“I think it’s going to take more than a few government incentives to increase the birth rates in a sustained manner, but in the short-term, I’m thinking in 2025-2026 we are, in all likelihood, going to see a reasonable lift in births.”
Rimmer said he was told some competing products with an A2 milk component were rethinking some of their marketing messages.
“When they spend money marketing A2 milk, the customer goes to the a2 Milk company.”
Rimmer said in the past five years there’s been an upsurge in companies offering China products made of A2 milk, including by food giants like Nestle and Chinese companies.
Originally all cows’ milk contained only the A2 protein type. The A1 protein arose through a genetic mutation over many years and the results of peer-reviewed human clinical trials showed A1 protein can cause digestion issues for some people who have difficulty drinking milk.
A2′s website says it continued to pioneer the science of identifying cows that naturally produce milk that contains only the A2 protein and no A1.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.
