business

Baby-Formula Stocks Jump After China Vows to End One-Child Rule

Updated on
  • Shares of Danone, Nestle and Mead Johnson gain after news
  • Baby food in China represents about 7% of Danone's earnings

Will Ending the One-Child Policy Benefit China's Economy?

Danone rose as much as 3 percent in Paris and Nestle SA also gained after China said it will lift its one-child policy, boosting the outlook for sales of infant nutrition.

Danone shares advanced as much as 3 percent to 65.16 euros, while Nestle added as much as 0.7 percent to 76.25 Swiss francs in Zurich. Mead Johnson Nutrition Co. rose as high as $83.75 in New York trading, a 5 percent gain.

Danone, Nestle and Mead Johnson are among the biggest players in China’s $19 billion baby-formula market, which represents about a third of the industry globally. China’s announcement is good news for all such companies, according to Pierre Tegner, an analyst at Natixis in Paris. He estimates that baby food in China represents about 7 percent of Danone’s earnings.

A committee of China’s ruling Communist Party approved plans to allow all couples in China to have two children, the official Xinhua News Agency said Thursday at the end of a four-day party gathering in Beijing.

There’s been a worldwide boom in the flow of baby food to China, with quantities ranging from single cans sold via Amazon.com Inc. to 25 metric-ton orders through suppliers on Alibaba.com. Since a 2008 infant-formula scandal that hospitalized 50,000 babies, the Chinese have sought out foreign-made brands. That’s accelerating now with the development of online marketplace sites such as Alibaba Group Holding Ltd.’s Tmall.com and Taobao.

About 30 percent of baby formula consumed in China is ordered via the Internet following a “very, very quick shift” in purchasing patterns, according to Danone Chief Executive Officer Emmanuel Faber. Much of Danone’s European sales growth in recent quarters has come from exporting products to Asia.

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