(Yicai Global) July 18 -- Wyeth Inc. [NYSE:WYE], a leader in China's infant formula market, announced its entry into the organic baby milk powder market yesterday, dogging the footsteps of its two rivals Health and Happiness (H&H) International Holdings Ltd. [HK:1112] and Feihe International Inc. [NYSE:ADY].
The organic milk race has started with a vengeance.
China has strict requirements and standards for the production and processing of organic milk products. Producers must conform to a set of organic agricultural production, certification and regulatory criteria regarding the quality of farms (pasture, air, water, etc.), cattle, production and processing operations, and they may not use any pesticides, fertilizers, growth regulators, feed additives, genetically engineered organisms or related products. Raw organic milk is thus a scarce resource and therefore priced accordingly.
"The introduction of the 'second child policy' will send China's infant formula market into a new phase of rapid growth, and total annual sales are expected to exceed USD14.7 billion (CNY100 billion) by 2020," said Qu Feng, president of Wyeth Nutrition Greater China, "Driven by the rise in consumerism, competition on the infant formula market has shifted from quality and brand upgrades toward a 'health upgrade,' so Wyeth has decided to enter the organic milk market."
The company intends to consolidate its leading position by developing a complete organic milk powder production line. It has remained a dominant player in the medium- to high-end baby formula market, the manager of a Chinese organic milk company noted. Its upscale brand Illuma makes up some 60 percent of Wyeth's total milk sales revenue. As market competition heats up in step with intensifying consumerism, Wyeth's release of its organic milk products under the Illuma brand to modernize its products is a natural choice in line with the latest trends on the high-end market.
The organic milk market is relatively small, but has excellent growth potential, dairy industry expert Lei Yongjun told Yicai Global. "Organic infant milk products only comprise two to three percent of total market volume," he explained. The total volume of the Chinese milk powder market is about CNY70 billion, and that of the organic milk market is less than CNY2 billion, representing only a small fraction of the total, but the organic milk market has enormous development potential, Lei observed.
The market penetration of organic milk products reached 40 percent in Germany in 2015, compared to 22 percent and 19 percent in Australia and Switzerland, respectively, statistics show. The figure in China was a mere two percent. If it increases to around 20 percent in the next three years, then total market size will grow to CNY20 billion.