Infant Nutrition Firms To Benefit From Reversal Of One-Child Policy

The decision by China to relax its one-child policy is a major development for the dairy industry, particularly the infant formula segment. China was already the greatest global opportunity for formula, and the revision of the policy is expected to lead to an additional 2mn-3mn more births per annum, according to James Liang, a Peking University economics professor. Births in 2013 are expected to total 16mn, according to the CIA World Factbook and the UN; this development is particularly good news for market leaders such as Mead Johnson, Nestlé and Danone - all of which see China as a monumental long-term opportunity.

Of these companies, Mead is the only one focused purely on infant formula, with China serving as the backbone of an emerging markets business that accounts for more than 70% of its annual sales. In the Asia Pacific region, Mead is the second biggest company by market share, according to Euromonitor, behind Nestlé and ahead of Danone. One of its main rivals in China, Danone, has had some issues in the country over recent months following the recall of some of its products earlier in 2013 following a scare which has proven to be unfounded. This has probably helped Mead.

From a fundamental standpoint, we continue to see infant formula as one of the faster-growing and most lucrative sectors within global food and drink. Margins are particularly high, and companies within the sector will continue to be very well placed to grow strongly as incomes rise and demand for high-quality infant formula grows. Concerns about food safety are prevalent in many emerging markets, and combined with greater spending power across a lot of the emerging world, this has created outstanding opportunities for Western infant formula brands.

Trading Near Key Resistance Level
Mead Johnson Daily Share Price & 200-Day Simple Moving Average (US$)

or Register now for free to read the full article

This article is tagged to:
Sector: Food & Drink
Geography: China