Is China poised to deal the world dairy market another blow?
Hopes that the ditching of the country's policy of restricting families to one child would spur a jump in births, and so booming demand for infant formula, may prove misplaced, Credit Suisse said.
In fact, the birth rate, currently running at about 16m per year could fall to close to 12m by about 2030.
The bank said it was "rather less confident that the relaxation [in the One Child Policy] will lead to any uptick in Chinese birth rates", in fact arguing the contrary.
"As countries get richer so middle class fertilizer declines," with the growing cost of raising children a facor too.
Furthermore, "Chinese women are becoming progressively better educated and working more than in the past".
The comments come as many market commentators are in fact switching to strong European Union production, from weak Chinese demand, the primary blame for continued weakness in dairy prices.
New Zealand-based Fonterra, the world's biggest milk exporter, on Thursday, noting a "slow recovery of dairy imports into China", said that a "downward correction in EU supply" was needed for world prices to revive.
Rival Westland Milk Products said this week that "the major global driver of downward prices, however, is the ongoing growth of milk supply in Europe and the US", adding that the "slowdown in the Chinese economy has had little impact" on consumer demand for high-end foods.
"Right now, [Chinese] consumers want premium products and are willing to pay premium prices for them," said Gregg Wafelbakker, Westland's China head.
"Demand for premium dairy products, such as UHT milk, UHT cream and infant formula, continues to enjoy growth rates between 10-30%."
However, the infant formula market, a hugely important source of dairy demand, is continuing to catch out participants, Credit Suisse noted, flagging that "most of the local companies have warned" on profits.
These include Beingmate, whose shareholders include Fonterra, and which blamed "intense competition" for a slump to a half-year loss of 103m renminbi, from a 108m renminbi profit a year before, on sales down 26%.
Biostime, highlighting price discounting amid strong rivalry which saw no sign of abating, reported first half profits down 34%, on sales down 10%.
And Yashili, in which Danone has a major stake, in November warned on profits, forecasting a 55% decline in full-year profits.
Among Western operators in the market Mead Johnson, a big player in the Chinese infant formula market, has foreseen am 11% drop in organic growth in Asia.
However, France-based Danone looks placed for strong growth, thanks to its exposure to the e-commerce sector of the market popular with Chinese consumers who have, since the 2008 melamine scandal, and other food scares, retained a scepticism of local product.
"Our understanding is that Danone leads this [e-commerce] channel, with the top two brands, Aptamil and Nutilon, while Milupa also a significant brand," Credit Suisse said, estimating at 31% Danone's share of the e-commerce part of China's infant formula market.
The performance contrasts with Danone's struggle in China's conventional, store-based market for infant formula, where is Dumex brand was hit by a false alarm over botulism poisoning, relating to product bought from Fonterra.
Dumex, which Danone is to sell to Yashili, "today has about 3% in the supermarket trade, and is still losing ground", Credit Suisse said.
Danone will, after the Dumex sale, see its sales of infant milk formula in China fall from about E900m to about E750m – of which some two-thirds will be put down to Europe, from where most of infant formula sold through e-commerce originates.
Credit Suisse made the comments as it held at "underperform" its recommendation on Danone shares, for which it trimmed its target price by E2.00 to E56.00, raising concerns about waning margins in a yoghurt market looking increasingly "commoditised".