October 29, 2015 / 10:33 PM / 4 years ago

China policy change not seen as formula for food maker's growth

CHICAGO (Reuters) - Stock prices for baby food makers, which climbed after China pledged on Thursday to ease family planning restrictions, may have surged too soon, with analysts and one leading company predicting little chance of a significant bump in demand from the policy change.

A boy leans on a sack of cabbages at a vegetable wholesale market in Jinan, Shandong province July 13, 2014. REUTERS/Stringer

Shares for milk-powder maker Danone SA (DANO.PA) hit a five-month high and Mead Johnson Nutrition Co MJN.N reached a two-month high after China’s ruling Communist Party said it will allow all couples to have two children after decades of a strict one-child policy.

Increased demand from China, already the world’s most populous country, has the power to rally prices for any commodity. Baby food companies have been particularly desperate for a boost because China’s economic slowdown and government campaigns to promote breastfeeding have significantly hurt formula sales.

But no baby boom is likely to be forthcoming soon because small families are an engrained part of Chinese culture and adding more children is too expensive for many, analysts and economists said.

Even Mead Johnson, one of the top five international baby formula brands in China, said it did not expect the policy adjustment to “significantly impact births or birth rates in China, consistent with what we have seen in previous rounds of relaxation.” 

Danone did not respond to questions.

In 2013, China relaxed its one-child policy that was implemented around 1980. As a result, the incremental impact of new changes will be “much less than often perceived,” financial services firm Nomura said in a note.

Companies would welcome more babies to feed after global prices for whole milk powder fell in July to levels not seen since 2009, largely because of weak Chinese demand, according to the U.S. Department of Agriculture.

New Zealand is the top dairy exporter to China, and its shipments of whole milk powder in the first five months of 2015 were down 65 percent, according to the USDA.

Fonterra Cooperative Group Ltd (FCG.NZ), the world’s biggest dairy exporter, is based in New Zealand.

Retail sales of baby food in China in 2011 totaled 68 billion yuan, or about $10.7 billion, with sales of baby milk formula accounting for about 90 percent of the value, the USDA said in a report last month, citing data from Euromonitor.

Many Chinese parents have bought baby formula produced overseas since a safety scandal in 2008 killed six infants.

For dairy demand, “we probably won’t see an impact from this change in the one-child policy, at least not one that we can detect,” said Fred Gale, a senior economist for the USDA.

“People are still very cautious about having children because it’s very expensive.”

In posts on the microblogging site Weibo, China’s Twitter-like service, some people in China cited the cost of raising children as they rejected the idea of having a second child.

“Allowing two children for families will not change things very much,” said Lester Brown, a former U.S. agriculture analyst and the author of the book “Who Will Feed China?”.

China waited too long to change the policy, said Gary Blumenthal, president of agricultural consulting firm World Perspectives, noting the migration of rural residents to cities.

“You’re not going to be producing babies to become farm laborers like you were a generation ago,” he said.

But Bunge Ltd (BG.N), a top global agricultural trader, is predicting the change will add millions more babies to China’s population over the long term.

The change is “good for demand, but it’s not necessarily steaks,” Bunge Chief Executive Soren Schroder told Reuters.

“It’s the whole spread of basic food, starting with infant nutrition and then working its way up to poultry, pork, processed foods of various types,” he said.

Reporting by Tom Polansek; Editing by Ken Wills

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