China’s dairy industry, once a sure bet for investors amid rising incomes and living standards, is nearing the end of a “multidecade boom” as a slowing economy, ageing population and declining birth rates take their toll, according to S&P Global Ratings.
Sales of the country’s top dairy firms fell between 9 and 13 per cent in the first half of 2024, according to the report published by the rating agency on Monday. Among them, China Mengniu Dairy reported a 12.6 per cent revenue slump to 44.7 billion yuan (US$6.2 billion) in the six months to June, while rival Inner Mongolia Yili Industrial Group’s sales fell 9.5 per cent to 59.9 billion yuan amid waning consumer appetite.
“A steep drop in revenue in the China dairy sector suggests that a multidecade boom is finally ending,” and this moderating growth could prompt companies to expand into new product categories or tap overseas markets, analysts including Flora Chang said in the report.
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The report added that the downturn was likely to be temporary and that China’s dairy market will continue to grow, albeit at a slower pace.
“A shrinking population and moderating economic gains will translate to a likely 2 to 3 per cent compound annual growth rate [CAGR] in volume sales over the next two decades – half the rate of the prior two decades,” S&P said.
China’s birth rate hit a record low of 6.4 births per 1,000 people last year, according to official data, while the natural population growth rate dropped to minus 1.48 per 1,000, marking the second consecutive year of decline.
Meanwhile, China’s population of people aged 60 and above grew to nearly 300 million last year. As life expectancy increases and fertility rates decline, this demographic is expected to reach 402 million by 2040, or 28 per cent of the population, according to the World Health Organization.
An ageing population is not entirely bad news for the dairy industry, S&P said, adding that it could be “positive to volume growth 10 to 15 years from now.”
This shift has prompted both local and international dairy producers, from Danone to Yili, to develop products catering to adult consumers.
The rating agency cited the example of milk formula. “Even though the total daily consumption of adult formula will always be lower on a per capita basis than for infants, the growing number of elderly will likely offset declining baby consumption,” according to the report.
But S&P warned that powdered milk for adults was unlikely to feature high in value terms, as consumers are not as willing to pay as much for products in this category as for infant formula.
Volume sales of baby milk are set to decline at a CAGR of minus 1 per cent to minus 3 per cent between 2023 and 2029, according to a study last November by GlobalData, a London-based analytics provider.
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