China’s leading infant formula company, Feihe, has reported a significant downturn in profits, attributing the decline to the nation’s decreasing birth rates.
Feihe, which is listed in Hong Kong and commands an estimated 17% of China’s infant formula market, experienced a downturn in its 2023 revenues, “primarily due to [the] low birth rate in China and high competitive pressure in the industry”.
The firm’s annual profit fell to 3.29 billion yuan, a 33.5% decrease from 2022. Gross profits were also down by 9.2% at 3.29 billion yuan ($455.1m), with revenues dropping 8.3% to 19.53 billion yuan.
Having issued a profit warning in August, Feihe highlighted the declining birth rate and an anticipated net loss from its listed subsidiary, YuanShengTai Dairy Farm, as contributing factors.
Feihe’s commentary alongside its 2023 financial results stated: “According to the National Bureau of Statistics, China’s birth rate dropped from 10.94% in 2018 to 6.39% in 2023, with the number of newborns declining to approximately nine million in 2023.
“According to Frost & Sullivan, an industry consulting firm, the number of children aging from zero to three decreased accordingly from approximately 50.1 million in 2018 to approximately 28.5 million in 2023.”
Yet, Feihe also conveyed a sense of optimism, noting: “Despite the decline from 2018 to 2023, the decline in the number of newborns is expected to slow down from 2023 to 2027, thanks to the supportive measures for the [Chinese government’s] three-child policy.”
The company also anticipates an uptick in consumer trust and preference for domestic infant-formula products, attributing this to improvements in China’s dairy quality management and the competitive edge of Chinese dairy brands.
“With the enhancement in the quality management regime of China’s dairy industry and the increased competitiveness of Chinese dairy brands, consumers’ confidence in and consumption preference for China’s infant milk formula products continued to increase. Such increase will drive the production and sales of China’s infant milk formula products,” it mentioned.
Furthermore, Feihe predicts that the luxury infant-formula market segment will expand due to increased urbanisation, rising disposable incomes, and a heightened focus on health.
“The demand for high-end infant milk formula products is expected to be the driving force of the overall infant milk formula industry in China,” it stated.
The company also highlighted the influence of the Chinese government’s Action Plan for the Promotion of Domestic Infant Milk Formula, aiming to boost the share of domestically-produced baby milk to achieve a self-sufficiency level of 60%.
Feihe’s portfolio encompasses infant milk formula, adult milk powder, liquid milk, and goat milk infant formula. The company boasts an extensive national distribution network, covering over 83,000 retail points of sale, and also markets its products on major e-commerce platforms.
Additionally, Feihe ventures into the dietary supplements market in the US through its subsidiary, Vitamin World USA.