China ending one-child policy offers boost to dairy demand

Infant milk on sale in a supermarket in Singapore on Dec 11, 2014. World milk prices have slumped this year in part because of a slowdown in Chinese imports. ST FILE PHOTO

(Bloomberg) - China's decision to end its one-child policy offers a boost for embattled dairy producers.

The country, the world's biggest consumer of dried milk powders used in infant formula, is ending the three-decade policy and will allow all couples to have two children, the official Xinhua News Agency said on Thursday (Oct 29).

World milk prices have slumped this year in part because of a slowdown in Chinese imports, with the benchmark GlobalDairyTrade auction price falling in August to the lowest on records going back to 2008.

China makes up almost half the world's imports of whole milk powder, though purchases are expected to drop about 40 per cent this year as economic growth slows and the nation works through large dairy stockpiles, US Department of Agriculture data show.

It will take at least several months before the new Chinese policy affects demand, and prices, already rebounding from the August low, probably won't see a significant increase until the second quarter of next year, said John Lancaster, a dairy analyst at INTL FCStone.

"If this leads to a large increase in child numbers, it would definitely be supportive in the medium to longer term," Lancaster said by phone on Thursday from Dublin.

"Infant formula is a big export product into China."

Low milk prices in recent months spurred losses for farmers from Europe to New Zealand, sparking protests and leading the European Union to issue a 500 million-euro (S$770 million) emergency aid package to help keep some producers in business.

Chinese imports of whole milk powder from New Zealand, the biggest shipper, fell 58 per cent in the first nine months, compared with the same period in 2014, Lancaster said, citing New Zealand government figures.

The drop in global dairy prices was exacerbated by a Russian ban on some European and US food exports, as well as a global oversupply of milk.

News of China's plan to end its one-child policy boosted makers of infant formula including Danone, which rose as much as 3 per cent in Paris trading.

Danone, Nestle SA and US-based Mead Johnson Nutrition Co. are among the biggest players in China's $19 billion baby-formula market. The Chinese have sought out foreign-made brands since a 2008 infant-formula scandal that hospitalised 50,000 babies.

The change in policy is "definitely a good signal for the longer-term growth of dairy demand," Robbie Turner, head of European markets at Rice Dairy International, said by phone from London. "The question I have is what the pick-up rate is going to be."

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