(Yicai Global) March 29 -- Chinese milk powder producers are facing a difficult year amid the lingering effects of the Covid-19 pandemic, a declining birthrate in China, and an ongoing price war, industry insiders said.
China Feihe, the country’s largest milk powder maker, logged CNY21.3 billion (USD3.1 billion) in operating revenue last year, down 6.4 percent from 2021, and CNY5 billion (USD726 million) in net profit, down 28 percent, it revealed late yesterday.
Ausnutria, another big producer, said earlier this year that it expected operating revenue of CNY7.8 billion to CNY7.9 billion for 2022, down 11.5 percent to 12.3 percent from the year before.
The slide in demand due to the pandemic and fewer births has also led to intense price competition, particularly among Chinese milk powder makers, which shows no signs of ending.
Prices of infant formula in Beijing and well as Shandong and Shaanxi provinces have slumped from last year, Yicai Global found. For some major foreign suppliers such as Groupe Danone and FrieslandCampina, prices have been stable, but other overseas brands have been forced to join in the price war.
One Chinese brand’s milk power was selling for CNY190 to CNY200 (USD27.60 to USD29.10) a can last year, but it is now only CNY165 to CNY180, and that drop is not an isolated event, dealers told Yicai Global.
Ongoing soft demand, a major reason for lower prices, and poor sales contribute to the oversupply, according to Song Liang, an independent dairy industry analyst.
Some producers have also been selling excess products to dealers to try to bolster sales, but that has lead to swelling inventories at dealers so they have had no choice but to undersell products, the head of a milk powder firm told Yicai Global.
Producers have been trying to support earnings growth by raising their market share but that is hard against the backdrop of shrinking demand, so it is unlikely that firms in the sector will report positive earnings this year, the person added.
Producers have been trying to support earnings growth by raising their market share but that is hard against the backdrop of shrinking demand, as it is difficult to keep retail prices steady while also trying to gain market share from rivals, the person said, adding that he is not optimistic about the industry this year.
Editors: Tang Shihua, Tom Litting