China Ending Its One-Child Policy Offers a Boost to Dairy Demand

Will Ending the One-Child Policy Benefit China's Economy?
  • Country is top consumer of milk powder used in infant formula
  • World dairy prices fell this year on Chinese import slowdown

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 Thursday. 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 percent this year as economic growth slows and the nation works through large dairy stockpiles, U.S. 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.”

Milk Sucks

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 ($550 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 percent 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 U.S. 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 percent in Paris trading. Danone, Nestle SA and U.S.-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 hospitalized 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.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE