China’s infant formula market sees growing demand for premium and ultra-premium products

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Infant formula, or baby formula, is a powder/liquid food used as a substitute for mother’s milk in babies aged 1-24 months old. It is one of the fastest growing products in the baby food market segment. In 2020, the global infant formula market was valued at US $56 billion. The market is growing at a staggering rate, and one of the major reasons is a significant increase in the demand for infant formula in China, which accounted for almost 50% of the total market value (US $28 billion) in 2020.

Continued demand for infant formula can be attributed to a growing middle-class population, the rise in participation of women in the labor workforce, and growing awareness among Chinese parents of the nutritional value of infant formula.

In the past few years, another important growth factor has emerged: the significant rise of premium and ultra-premium formula in the Chinese market.

This trend is evidenced by growth rates in the infant formula market in 2015-2018, during which the market witnessed a mere 5.5% increase in infant formula sales by volume but grew by more than 9% in terms of value during the same period.

Chart from ChemBizR

Chart from ChemBizR

Chart from ChemBizR

Chart from ChemBizR

Premiumization of Infant Formula

Companies are conducting extensive research on the components of mother’s milk in order to match their nutritional value in infant formula. Some of the latest ingredient developments include OPO (oleic-palmitic-oleic), lactoferrin, prebiotics (HMO, or human milk oligosaccharides), and omega-3 and omega-6 lipids. Today, these are prominent ingredients distinguishing premium and ultra-premium infant formula, making these products highly expensive.

All prominent infant formula exporters and local companies in China have been launching special infant formula brands to leverage the growing demand with the following ingredients:

Oleic-Palmitic-Oleic (OPO)

Oleic-palmitic-oleic (OPO) refers to a fat structure in which palmitic acid is attached to the SN-2 position of the glycerol chain. It is a unique fat structure present in large quantities in human mother’s milk. It is now proactively used in infant formulations because of its benefits such as easy digestion, colic relief, and better calcium absorption.

China is the largest market for OPO, accounting for almost 90% of global demand. OPO is one of the most common ingredients in premium and ultra-premium infant formula brands sold in China. Parents are also highly aware of this ingredient, a major factor driving sales of OPO-based premium infant formulas in China.

Almost all global infant formula companies have launched premium OPO brands exclusively for the China market, including Illuma (Nestlé), Aptamil (Danone), Kabrita (Ausnutria), and Vana-Sana (FrieslandCampina), among others. Similarly, local players have launched specialized brands with OPO, with Astrobaby, Miao Shu Huan, Xingjie Youhu (Feihe), Yili, Mengniu, and Bright Dairy among those to leverage the growing demand.

Prebiotics (Mainly HMOs)

Prebiotics, namely human milk oligosaccharides (HMOs), are growing their presence in the infant formula market. HMOsare unique, complex carbohydrates that help stimulate the growth of friendly bacteria in the gut. They are naturally present in human milk, representing the third largest component after fats and proteins.

Currently, more than 200 HMOs have been identified in human milk, but only a few of them are developed commercially to be incorporated in infant formula. 2’-fucosyllactose (2’-FL) and 3-galactosyllactose (3’-GL) are two prominent HMOs abundantly used in premium and ultra-premium infant formula.

Global companies such as Abbott, Nestlé, Mead Johnson, and Danone recently developed formulations with HMOs to capture the evolving market. It is projected that HMO-based infant formula will represent the largest number of new product launches in the coming year or two.

In China, HMO-based formulations are considered ultra-premium. Local giant dairy companies such as Feihe, Yili, H&H, and Yashili have been making rapid advancements to launch new brands with HMOs.

Lactoferrin

Lactoferrin, also known as lactotransferrin, is a multifunctional, iron-transport protein naturally present in human and cow milk. As an antimicrobial and antiviral agent, lactoferrin is vital in establishing the immune system of an infant. It also helps babies absorb iron in breast milk. Lactoferrin is widely incorporated in infant formulas to emulate the lactoferrin present in human milk. Commercially, lactoferrin is manufactured via fermentation and skimming bovine milk, which is rich in lactoferrin. Lactoferrin-based infant formulas are generally expensive and are categorized as premium by most brands in China.

Prominent brands with lactoferrin in their formulations areEnfamil Enspire (Mead Johnson), Premium Zhenai Beihu, and Zhenai Feifan (Feihe).

Probiotics

Probiotics continue to feature in infant formula to help promote good bacteria in the gut. Bifidobacterium lactis and Lactobacillus species are commonly found bacterial strains in infants, helping prevent disorders such as infectious diarrhoea and atopic dermatitis.

Several international formula brands like Gerber have launched probiotic-based formulas in the China market, such as Gerber’s brands Gentle – B. lactis and Gerber Soothe – L. reuteri. So far, very few Chinese companies have launched probiotics-based formulations, but it’s a high area of interest.

Goat Milk Formula

The base milk powder used to formulate infant formula is traditionally skimmed from cow’s milk. However, growing cases of allergy towards cow’s milk have made goat milk a preferable alternative. Several scientific studies also report easy digestion and absorption of goat milk infant formula by babies.

Over the years, goat milk–based formulas became popular and were extensively used by people in Asia. Almost one-fifth of the total infant formula tins sold in South Korea are made from goat milk.In China, goat milk gained prominence in the last few years due to its increasingly higher nutritional values. According to a report published by the China Academy of Social Sciences, the market for goat milk–based infant formula has almost doubled, reaching US $1.4 billion in 2020 from US $0.7 billion in sales in 2015.

Prominent infant formula companies with goat milk–based formulations are Kabrita (Ausnutria), Yili Dairy, and Mengnui Dairy. Kabrita was one of the first brands to launch in this space and hence commands a dominant position in the market, with a market share of almost 60%.

Omega-3,-6 Oils

The long-chain omega-3 fatty acid docosahexaenoic acid (DHA), and the long-chain omega-6 fatty acid arachidonic acid (ARA), are commonly found in breast milk. These essential polyunsaturated fatty acids have proven to support the growth and development of an infant’s central nervous system.

Though DHA is regarded as quintessential for the growth of babies, it was included in the “optional ingredients” category by China’s regulatory agency—until recently. DHA has now been upgraded to the “essential ingredient” category, which mandates all formulators to compulsorily include this ingredient. (ARA is still categorized under “optional ingredients” and thus is not compulsory in final products.)

Bright Future for Infant Formula in China

After the adoption of China’s recent childbirth policies, birth rates in China are anticipated to increase if not remain constant. There has been a paradigm shift in consumers’ buying behavior of infant formula, with parents showing preference for premium and ultra-premium infant formulas over conventional formulas. This trend is expected to continue. The decreasing growth rates of infant formula in China by volume, juxtaposed with increasing growth rates in value, will lead to consolidation and a very competitive market. Hence, dairy companies are now endorsing aggressive research to develop novel ingredients that can bring the infant formula closer to mother’s milk, the industry’s “gold standard.”

Anil Pothamsetty (anil.p@chembizr.com) is a consultant, specialty chemicals, for ChemBizR. ChemBizR is a boutique business research and consulting partner of chemical companies globally, involved in addressing companies’ critical business challenges and strategic growth initiatives to help them transform their enterprise for sustainable growth in a highly competitive and rapidly evolving environment. For more information, e-mail connect@chembizr.com.