The Infant Formula Industry Stagnates... Expanding with Protein

Low Birthrate and Sharp Decline in Exports to China
Domestic Production Down 35% in 4 Years
Maeil Dairies Pioneers Protein Market with Nutrition Brand 'Selex'
Prolonged Owner Risk at Namyang
Urgent Need to Restructure Business Portfolio

[Asia Economy Reporter Seungjin Lee] The domestic and international infant formula markets have rapidly contracted, causing difficulties for the domestic infant formula industry. This is due to the entrenched low birthrate and a sharp decline in infant formula exports caused by China’s ‘Hanhanryeong (限韓令·Korean Wave Restriction Order).’

Infant Formula Market Shrinks to One-Third in 4 Years

According to related industries and the Ministry of Agriculture, Food and Rural Affairs on the 15th, last year’s domestic infant formula production value was about 172 billion KRW, a decrease of approximately 35% compared to 260 billion KRW in 2016. The market decline is due to the persistent low birthrate, with the number of newborns hitting record lows every month since April 2016, resulting in an annual decrease in the infant formula market. Production volume also sharply dropped from about 58,400 tons in 2016 to 18,815 tons in 2020.

Turning to overseas markets has not been easy either. Since China’s THAAD (Terminal High Altitude Area Defense) retaliation in 2017, exports have sharply declined and have yet to recover. China is the largest export market, accounting for about 74% of domestic infant formula exports. The volume of infant formula exports to China was 6,142 tons last year, down about 28% from 8,537 tons in 2016. Along with Hanhanryeong, competition with European and local Chinese brands has intensified, further narrowing the position of domestic infant formula.

On the bright side, exports to the Vietnamese market, the second largest infant formula export market after China, are rapidly growing, providing some consolation to the industry. Last year, infant formula exports to Vietnam reached 1,046 tons, a 116% increase compared to 2016. This growth is attributed to rising interest in child growth and the rapidly increasing trust and recognition of Korean premium infant formula.

Maeil Dairies Grows with Protein

While the infant formula market is rapidly shrinking, the outlook for the industry’s top two companies, Maeil Dairies and Namyang Dairy Products, diverges. Maeil Dairies is quickly restructuring its business portfolio, while Namyang Dairy Products is struggling with prolonged owner-related risks, widening the gap between the two companies.

In October 2018, Maeil Dairies launched ‘Maeil Health Nutrition,’ a specialized nutrition design brand, and introduced the product ‘Selex,’ pioneering the protein market. Selex grew from 25 billion KRW in sales in 2019 to about 50 billion KRW last year. Despite intensified competition as many companies have entered the protein market recently, Selex is expected to achieve sales of 70 billion KRW this year due to its market preemption effect.

Maeil Dairies is expected to maintain stable growth by reorganizing its business portfolio. In the third quarter of this year, Maeil Dairies recorded an operating profit of 22.17428 billion KRW, a 1.6% increase compared to the same period last year. Sales reached 393.07228 billion KRW, up 3.5% year-on-year. Overall sales for this year are projected to grow 5.5%, with operating profit increasing by 6.2% compared to the previous year.

Namyang Needs Urgent Business Restructuring

After losing the number one position in the infant formula market following the ‘Bulgaris controversy,’ Namyang Dairy Products has yet to stabilize due to prolonged owner-related risks. As of March this year, infant formula accounts for 20% of Namyang’s total product sales, making the company more vulnerable as the infant formula market shrinks. Namyang’s market share in the infant food sector was 29% in 2017, ranking first. However, the share has declined annually, dropping to 16.8% in 2020 and further down to 15.1% as of August 2021, making business portfolio restructuring urgent.

Namyang Dairy Products recorded a cumulative operating loss of 58 billion KRW in the third quarter of this year. During the same period, sales decreased by 1.5% to 710.6 billion KRW, and net loss widened to 40.6 billion KRW compared to the previous year.

An industry insider explained, "With the absolute size of the infant formula market expected to continue shrinking, creating new demand such as protein is essential for survival. Unless overseas exports regain momentum, the infant formula business will inevitably face difficulties."

This content was produced with the assistance of AI translation services.