(Yicai Global) Dec. 29 -- The Chinese market for baby formula is contracting, as product prices and sales fall amid the pandemic and a declining birthrate while raw materials get costlier.

This year has been the worst, according to Liang Sheng, who founded a small maternity and baby products chain store in Weihai, Shandong province in 2010. Prices of baby formula have halved to about CNY100 (USD14.40) a can, Liang said, and the firm’s business has slumped, especially in the second half, with monthly sales at some outlets halving. 

The business owner said repeated Covid-19 outbreaks have hit local tourism and manufacturing, while lower incomes crimping residents’ purchasing power.

Even upstream parts of the supply chain are facing difficulties. Wang Ming, a milk powder agent in Weihai, said he has never seen higher inventory than this year, so he stopped making full payments to the factory.

But there is a mismatch between consumer and ex-factory prices as raw materials are getting more expensive. Some Chinese milk powder makers have started raising prices, giving rise to discontent among distributors.

Next month, the prices of all the products that Wang is selling will go up, he learned. But the agent has not been able to pass on the hikes to consumers in the highly competitive market, so his margins will be squeezed.

Big milk producers are not doing that great either. In the six months ended June 30, Beijing-based China Feihe had net profit of CNY2.3 billion (USD330 million), down about 40 percent from a year ago. Changsha-based dairy giant Ausnutria Group logged a 63 percent drop in net profit to CNY220 million (USD31.6 million).

Dairy companies continue to diversify their businesses, expanding into milk formulas for children and the elderly, as well as nutrition and pet foods, to boost their revenues. But these segments cannot fully offset the downturn in their core business, as they are not yet mature, insiders said.

Editors: Shi Yi, Emmi Laine, Xiao Yi