Danone, Abbott, and Wyeth, the three biggest makers of baby food in the world, all have factories in Ireland. They are all facing a major change in the market, which could have bad effects on jobs and dairy processors.
China is the biggest market for infant formula in the world, and these three exporters put a lot of effort into selling there. However, China has become hard to sell to because of restrictions on Covid-19, a low birth rate, registration requirements, and fierce competition from Chinese manufacturers who have won back consumers’ trust.
Euromonitor says that Chinese brands have quickly gained market share in recent years. Based on retail sales, Feihe will have 20% of the market in 2022, up from 12% in 2019. Yili, the other top Chinese brand, will have 14%.
Compared to this, imported brands like Danone, which is down to 12%, and Nestle, which owns Wyeth and is down to 10%, followed by Abbott at 3%, have lost a lot of market share.
The Covid pandemic and the problems it caused with shipping goods around the world were especially bad for European companies that sold to Asian markets.
This year’s problems are made worse by the fact that the Chinese government will start to use a new national standard for infant formula next month. Many companies, including European manufacturers, are still waiting for approval.
International companies have to deal with a lot of competition from Chinese companies that are regaining the trust of consumers.
International companies have to deal with a lot of competition from Chinese companies that are regaining the trust of consumers. Image by: STR/AFP/Getty
Industry experts think that China’s new standards will cause up to a third of all formula brands to go out of business this year. This is likely to make Chinese consumers trust local brands that meet the new standards even more.
Changes to the Chinese market are still a big question for the more than 1,000 dairy farms on the island of Ireland that supply quality milk to these big companies that make baby food.
Baby formula is mixed, pasteurised, and dried at the Abbott Cootehill plant, the Wyeth Askeaton factory, and the Danone Macroom and Wexford plants. Once they are packaged, they are sent to Europe, Southeast Asia, the Middle East, Latin America, Canada, but not the US.
The US Food and Drug Administration does not allow European companies to sell baby formula in the US because they are not regulated by it (FDA).
In the past year, some of the problems in the Chinese market have been lessened by the FDA’s decision to loosen controls on imports. This was done to make up for manufacturing problems, product quality recalls, and supply chain disruptions caused by Covid in the tightly controlled US market.
The United States is the second biggest market for baby food. But about 90% of the US market is controlled by just four companies. Nearly half of the market is made at Abbott’s US plant. Mead Johnson Nutrition, Nestlé USA, and Perrigo are also in the game.
Only 2% of formula comes from other countries, and it’s hard for new companies to get into the market because of FDA rules.
Because there are so few companies, when one shuts down, it starts a domino effect that has led to major shortages over the past two years. Mothers all over the US have been unable to buy when they need to because of these shortages.
In the past year, the FDA had to give temporary import exemptions to a number of non-US production facilities, such as Abbott in Cootehill and Danone in Macroom, in order to fix a serious shortage that had become a political hot potato.
But all exemptions for foreign suppliers were set to end at the end of December. Even if technical food safety standards are approved, US importers will have to pay tariffs of up to 17.5% on sales to the market.
The push for organic baby food around the world, especially by young parents, is another problem for the industry.
Many companies are trying to make baby foods that don’t come from animals but have the same nutrients as breast milk. This could help them make more money in the future, but it could also speed up the decline of the dairy processing industry in Ireland.
John Whelan is an expert on Irish and global trade.
