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The booth of Ausnutria at the Food and Agricultural Products Exhibition Area of the seventh China International Import Expo in Shanghai, on November 9, 2024.
As competition intensifies in the global dairy product market, many foreign dairy companies are focusing on China.
"China is the best market to debut breakthrough products," said Bruno Chevot, food and beverage multinational Danone China’s president for North Asia and Oceania.
The seventh China International Import Expo (CIIE), held in Shanghai in November 2024, saw 36 dairy companies from 12 countries take part along with Chinese dairy companies. Many launched new products, including "world premiere" products and customized products tailored for the Chinese market.
For Danone, it was the French multinational’s seventh consecutive year at the CIIE, and it launched its infant formula containing milk droplets that the company says closely mimic the structure found in human milk. Chevot said China is the first market in the world where this product is being sold.
Danone has introduced nearly 100 new products into the Chinese market, including a growing number of ones customized to Chinese consumers. Based on the insights gained in the Chinese market, these products are developed by its Chinese R&D team using Chinese AI technology, and manufactured using Chinese digital intelligence technology. They are first launched in the Chinese market and then promoted in other countries and regions.
Switzerland’s Nestle was also present at the 2024 CIIE. According to Fang Juntao, senior vice president of Nestlé Greater China, the dairy industry is currently facing significant challenges due to various factors such as changes in consumer demand. “In the past, China's dairy industry developed rapidly. Currently, there is still significant room for improvement in production and per capita consumption,” Fang said.
The Danone booth at the seventh China International Import Expo in Shanghai, on November 9, 2024.
To address the challenges, Nestlé has launched a China-customized complementary infant food under its Gerber brand. This new product targets the high-end baby food market segment and is currently in the marketing stage. Nestlé will consider global market expansion based on user feedback from the Chinese market.
Song Liang, a senior analyst of China’s dairy industry, says for foreign-funded enterprises, the value of the Chinese market lies not only in its enormous size, but also in its diverse consumer needs. The Chinese experience can serve as a valuable reference for other markets. Foreign companies make significant efforts to cater to the Chinese market because they have full confidence in it. In terms of purchasing power, China is already the largest consumer market, and companies can achieve high returns with substantial investments.
Dairy companies are not only focusing on traditional products such as infant formula, but also expanding into other categories, such as complementary infant food and milk powder for the middle-aged and elderly. Song says this indicates that foreign dairy companies are seriously assessing the Chinese market and seeking new growth opportunities.
These enterprises also attach great importance to the new growth opportunities brought by the silver economy, especially as China’s population ages.
New Zealand’s a2 Milk Company and Fonterra have both launched powdered milk products for the middle-aged and elderly, marketed as good for digestive, cardiovascular, and bone health. With the changing population structure in China, the investment in health for the middle-aged and elderly will definitely increase. Hence dairy companies are developing products for healthy aging, hoping they will click with Chinese consumers.
In 2023, China’s National Health Commission declared that two sugar compounds found in human milk and said to be beneficial – 2'-Fucosyllactose and Lacto-N-neotetraose – were officially approved as nutritive fortifiers that can be used in infant formulas, children’s formula, and specialized medical food for infants.
A visitor learns about new Nestle products on display in its booth at the seventh China International Import Expo in Shanghai, on November 9, 2024.
Domestic milk brands such as Mengniu, Feihe, Yili, and Junlebao are now marketing products incorporating the sugar compounds, also called human milk oligosaccharides (HMO). At the seventh CIIE, dairy companies vied to showcase their infant formulas with added HMO components, such as Danish-Swedish multinational Arla Foods debuting its infant formula containing five types of HMO, and Nestlé introducing a new product with six types of HMO.
HMO is the third largest solid component in human milk, following lactose and fat. It has a role in promoting brain development and regulating microorganisms living in digestive tracts called intestinal flora. It plays a significant role in improving the health and nutrition of infants and young children.
"With research on human milk nutrition, this field will further subdivide. Scientific strength will become enterprises’ core competitiveness, meaning the differences between products will be more significant," Song said.
The technological competition in the domestic dairy industry is intensifying. But compared to foreign markets, the market penetration rate of HMO formula is not high in the domestic market. Therefore, both domestic and foreign enterprises are eager to introduce new HMO products and seize an advantage in the market competition.
With the infant formula market entering a new adjustment period, there are signs of a bottom-out in the dairy industry. According to Nielsen IQ, from January to August of 2024, the sales of infant formula decreased by 3.9 percent year-on-year, with the decline continuing to narrow.
Cheng Yue, Arla Foods vice president and head of its China business, said, “We have always valued the Chinese market. Currently, the penetration rate of HMO products in China is 10-15 percent, which means new opportunities have arisen. When new demands emerge, our company will allocate research and development and production resources to bring new products to the market. As for infant formula, there is a clear demand and trend towards high-end products, which provides us with new opportunities.” 
HOU JUAN is a reporter at China Economic Weekly.
