Outbreak of The Epidemic Brings Challenges for Many Foreign Milk Powder Brands

By Lucy

11:12:00, Mar. 23, 2020

Outbreak of the epidemic overseas brings challenges for foreign brands

Up to now, the confirmed cases of Coronavirus (2019) abroad has exceeded China, and the epidemic has spread in many countries. Among them, Europe currently has the highest proportion of confirmed cases and deaths in the world, becoming a new epidemic center. As the epidemic develops into a "global pandemic" , one question for us to think it that will it affect the raw materials, production and logistics of the milk powder industry? will foreign milk powder supply be a problem?

The epidemic has not affected foreign milk powder supply

Europe has always been the largest source of Chinese foreign milk powder. Many factories such as Nestle, Danone, Meisu Jiaer, Abbott, Mead Johnson, Arla are located in Europe. Factories of many Chinese firms, such as Ausnutria Beit, Hyprocare 1897, Syrutra Yubo, and Health & Happiness, are also in Europe. According to the General Administration of Customs of China, China imported a total of 345,500 tons of infant formula milk powder in 2019, a year-on-year increase of 6.5%, among which the EU accounting for 71.6%, New Zealand accounting for 20.1%, and Australia accounting for 3.7%.

At present, the major dairy industries have already taken measures in advance in face of the epidemic. Factories are operating normally, and overseas factories are required to produce Chinese products in advance. Before the outbreak, sufficient stocks have been guaranteed to meet the Chinese market supply. So far, the overseas epidemic will not have a significant impact on normal production and operations.

One who is in charge of a foreign brand said, "New Zealand is currently diagnosed with fewer people and the government has taken corresponding measures to prevent emergencies. The impact on production and logistics is relatively small and the situation is basically controllable." 

Song Liang, a senior industry analyst in China said that "the countries that imported dairy products to China, such as the Netherlands, New Zealand, Australia, and France, were relatively less affected by the epidemic. China mainly imported dairy products in New Zealand, and the supply problem should be small."

BlueRiver Dairy also said that its New Zealand factory had started three shifts to fully protect the market supply. However, "Because of the impact of the epidemic in Europe, the D90 desalted whey powder, especially goat whey powder resource is becoming tight, and milk powder production is facing the supply interruption. At present, many European countries have upgraded their countermeasures for epidemic control. Some countries have closed or partially closed international logistics. The import and export logistics of milk powder are severely hindered. The production, canning, transportation, and distribution of infant formula powder are facing severe tests. In the next 2 or 3 months, the raw material supply for cow and goat milk powder will face challenges."

For foreign milk powder brands, the biggest test is how to make use of time. Once the epidemic in foreign countries is out of control, the global milk powder supply chain may encounter a crisis. Countries like Italy, Denmark, Austria, Germany and other countries have adopted "blocking" measures. German radio station Deutschlandfunk recently reported that Germany may soon be stuck in production stagnation. All restaurants, coffee shops and schools in the Netherlands have been temporarily closed up to April 6. It can be seen that for most European milk powder brands, the problem of supply chain and production stagnation is imminent.

Outbreak of the epidemic overseas brings challenges for foreign brands

Some European countries have started to block borders, and milk powder transportation logistics will also be greatly affected. For example, China-Europe logistics and transportation have stopped to run.

If sea transportation is used, a shortage of containers would be encountered. According to the latest data from Drewry, up to March 8, the price of sea freight from Rotterdam to Shanghai has increased by 24% to USD 786/TEU compared with the previous week. At present, the price of freezer transport in Europe has increased significantly, and the estimated price may double than usual.

There is no problem with the capacity of air transportation, but it is unknown whether the price will rise in the future due to the suspension of national aviation.

In short, with the outbreak of the epidemic, the speed of transportation will decrease, and the logistics cycle will be longer. Song Liang said that "The epidemic mainly affects transportation and logistics."

In this situation, foreign brands have to be with the strong ability to face the pressure. The pressure comes mainly from two aspects. Firstly, if there are problems in raw materials, logistics, or factories, reduction or suspension of production would occur. This will affect supply greatly. Secondly, when the logistics and transportation time is too long or the cost increases, the cost of products will rise accordingly. For example, BlueRiver Dairy has stated that "the cost of air transportation has tripled." In this sense, once the price of milk powder rises, some consumers will be lost, the competitive powder will decrease.

The most affected brands are those relying on procurement service of Haitao. With the outbreak of the epidemic, many routes to China have been cancelled or reduced, which will directly affect the procurement service. There are two reasons to explore. Firstly, there are fewer flight routes. Secondly, the logistics time is too long. As a result, sales of many brands this year will face a crisis, such as Niulan, Tefalf, and Creco.


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