How should the food industry respond to China’s underwhelming baby boom?

The number of births in China fell by 3.5% in 2017, an underwhelming drop in the second year after China’s one-child policy was scrapped. While overall birth rates are up compared to the years under the one-child policy, the lack of a significant baby boom will disappoint companies who hoped that an expanding population would fuel growth in a market that is cooling off.

China’s ageing population, the cost of raising children and the importance women place on their careers are as important a factor limiting birth rates as any government regulation.

Why has a baby boom not appeared?

The effects of the one-child policy have often been overstated. The policy only applied to some families: in 2015, the last full year of the one-child policy, only 53.5% of births were first children. And the effect finances have in limiting family size is often underestimated. A 2015 survey by Chinese website Sina.com found that 71% of respondents didn’t want a second baby due to the economic burdens this would entail.

China scrapped its one-child policy in 2016, allowing families to have two children. This was in response to fears that the country’s aging population would limit future economic growth. Originally introduced in 1979 the policy successfully slowed population growth in the country, but has resulted in a population that is increasingly old. 22% of the population was aged over 55 in 2017, compared to only 12% in 1990. This is creating a larger population of older dependents, with a declining number of young workers. It also means that women of a child-bearing age account for decreasing share of the population.

Selling more premium products

A surge in births would have been good news for baby care companies such as Nestlé, Danone and Mead Johnson. Further down the line the wider food and drink industry would have benefitted, as the number of consumers to target increased.

However, the weak birth rate means companies need to continue to focus on convincing Chinese consumers to pay more for a better quality of product. While the booming economy and increasing urbanization are increasing value growth in Chinese food and drink markets, the aging population acts as a break on volume growth.

If China wants to see a more sustainable increase in its birth rate then the government will need to take more aggressive measures to make it more affordable. This should include tax breaks on income and childcare services and targeted tax exemptions for Baby Care products. Many of these products are imported: permanent reductions in tariffs for baby milk, for example, will help assure Chinese consumers that it is economically viable to have a second child.