Production of infant formula by the major multinationals operating in Ireland has slowed dramatically in the last six months due to the adverse impact of COVID-19 on market demand.
The Irish Farmers Journal understands production volumes at the infant formula plants in Ireland owned by Nestlé (Wyeth) and Danone are down as much as 30% to 40% in recent months.
In a normal year, the industry in Ireland produces circa 250,000t of infant formula, with almost all of this product exported to markets in Europe and Asia. Exports of infant formula from Ireland stood at just under €1bn last year, with over a third (36%) of exports shipped to China and Hong Kong. 
The current fall-off in production at Irish plants means total infant formula production here could fall to below 200,000t this year.
Industry sources suggest Nestlé’s infant formula plant in Askeaton, Co Limerick, could be operating at close to half its annual capacity of 40,000t of infant formula in recent months. Similarly, production volumes at Danone’s two Irish infant formula plants, located in Cork and Wexford, are also understood to be well down on normal levels.
In Cootehill, Co Cavan, it’s understood production at the infant formula plant owned by US company Abbott has not been as badly affected.
The sharp drop in production of infant formula at these plants will be a major concern to Irish dairy co-ops like Dairygold, Glanbia, Lakeland, Tipperary co-op and Arrabawn. Between them, Irish co-ops supply the infant formula multinationals operating in Ireland with well over 100,000t of infant-grade dairy ingredients every year.
A number of co-ops have already seen a fall in demand for their ingredients from the infant nutrition companies as a direct knock-on from the lower production levels at each of the infant formula plants.
The drop-off in infant formula production at the various Irish plants has been attributed to a number of factors, including product stockpiling due to COVID-19 and changing consumer trends in key markets like China. Earlier this week, Danone announced it would cut 2,000 jobs globally (2% of its workforce) in a bid to cut costs by €1bn.
COVID impact
The global spread of the COVID-19 virus in February and March this year resulted in unprecedented pantry loading by consumers. Ahead of the lockdowns in early 2020, consumers across the world rushed out to stock up on essentials.
As noted in a detailed new report on the global infant formula market compiled by Tralee-based Teno Business Insight, the big four global infant formula companies (Nestlé, Danone, Abbott and Mead Johnson) actually recorded an increase in sales in the first quarter of the 2020.
However, analysis by Teno shows that consumer stockpiling from January to March resulted in a sharp drop in sales from April to September this year for the infant formula industry. Each of the big four infant formula players have reported weaker sales for the second and third quarters of 2020, particularly in China and Europe.
Infant formula sales in China have slowed dramatically in 2020.
Danone said it recorded “steep double-digit” declines in revenue in China in the third quarter of 2020, while sales in Europe were down by as much as 10% since April. Meanwhile, Nestlé, the world’s largest infant nutrition company, said the market in China remains challenged, while sales growth in Europe had ground to low single digits.
US company Abbott said it was still seeing modest growth in its core market in the US but warned that sales in international markets are down more than 8% over recent months.
“The global infant formula market has certainly reached a tipping point. For the past 10 to 15 years, China has been the powerhouse driving demand with double-digit growth in imports for the past decade. This has now changed due to falling birth rates and Chinese government initiatives to support domestic brands,” said Teno Business Insight director Eamonn Burke.
This reputation provides a good foundation for Irish dairy processors to explore and develop new areas of the growing nutrition market
“The Irish dairy sector has strong track record in supplying high-quality ingredients to the infant formula sector, which is built on the quality of Irish milk and the sectors technology and processing capabilities. This reputation provides a good foundation for Irish dairy processors to explore and develop new areas of the growing nutrition market, which could provide attractive opportunities.”
Future
Over the last decade, Irish infant formula exports have doubled. And while the multinationals have retained almost all the hefty profits from this growth, farmer-owned Irish co-ops have benefited from having these customers here as it increased processing standards and capabilities, while creating extra demand for dairy ingredients.
Irish dairy co-ops sell probably 200,000t of dairy ingredients to infant formula companies here and abroad every year, while over half of all our whey powder now finds its way into infant formula. However, what is becoming increasingly clear from the infant nutrition multinationals is that the growth in demand for infant formula has ended.
With falling birth rates and shifting consumer trends towards niche sections of the market like goat, organic or A2 infant formula, the rapid growth we’ve seen over the last decade in infant formula has stalled.
Companies like Danone and Nestlé know this better than anyone and are now talking openly of reducing their numbers of brands in the sector and broadening their focus to adjacent areas like medical nutrition and infant foods or cereals where there is now rapid growth.
Danone's infant nutrition facility in Co Wexford.
Investments
For the Irish dairy industry, these are important signals about value-added investments for the next decade. Looking ahead, the infant formula multinationals will continue to be an important customer for large volumes of dairy ingredients.
However, the slowdown in growth means this section of the market will become an increasingly difficult place for Irish co-ops to do business. There are probably 30 companies across Europe that can produce the ingredients to the standard needed by these companies.
Ireland’s dairy industry has a good track record when it comes to developing new formats and technology solutions for dairy proteins
With this in mind, Irish dairy co-ops thinking about making investments in value-added products in the coming years need to look where there are new and fast-paced growth opportunities. One such area is the lifestyle nutrition or adult nutrition sector. This is a market that is growing globally but one that requires much more advanced processing capabilities to make high-value, specialised ingredients such as whey protein isolate, whey protein concentrate, caseinates and other dairy proteins.
Ireland’s dairy industry has a good track record when it comes to developing new formats and technology solutions for dairy proteins. By making these types of targeted investments in specialised ingredients, Irish dairy co-ops will be able to reap more of the profit margin that has so eluded them in infant formula.
Production of infant formula by the major multinationals operating in Ireland has slowed dramatically in the last six months due to the adverse impact of COVID-19 on market demand.
The Irish Farmers Journal understands production volumes at the infant formula plants in Ireland owned by Nestlé (Wyeth) and Danone are down as much as 30% to 40% in recent months.
In a normal year, the industry in Ireland produces circa 250,000t of infant formula, with almost all of this product exported to markets in Europe and Asia. Exports of infant formula from Ireland stood at just under €1bn last year, with over a third (36%) of exports shipped to China and Hong Kong.
The current fall-off in production at Irish plants means total infant formula production here could fall to below 200,000t this year.
Industry sources suggest Nestlé’s infant formula plant in Askeaton, Co Limerick, could be operating at close to half its annual capacity of 40,000t of infant formula in recent months. Similarly, production volumes at Danone’s two Irish infant formula plants, located in Cork and Wexford, are also understood to be well down on normal levels.
In Cootehill, Co Cavan, it’s understood production at the infant formula plant owned by US company Abbott has not been as badly affected.
The sharp drop in production of infant formula at these plants will be a major concern to Irish dairy co-ops like Dairygold, Glanbia, Lakeland, Tipperary co-op and Arrabawn. Between them, Irish co-ops supply the infant formula multinationals operating in Ireland with well over 100,000t of infant-grade dairy ingredients every year.
A number of co-ops have already seen a fall in demand for their ingredients from the infant nutrition companies as a direct knock-on from the lower production levels at each of the infant formula plants.
The drop-off in infant formula production at the various Irish plants has been attributed to a number of factors, including product stockpiling due to COVID-19 and changing consumer trends in key markets like China. Earlier this week, Danone announced it would cut 2,000 jobs globally (2% of its workforce) in a bid to cut costs by €1bn.
COVID impact
The global spread of the COVID-19 virus in February and March this year resulted in unprecedented pantry loading by consumers. Ahead of the lockdowns in early 2020, consumers across the world rushed out to stock up on essentials.
As noted in a detailed new report on the global infant formula market compiled by Tralee-based Teno Business Insight, the big four global infant formula companies (Nestlé, Danone, Abbott and Mead Johnson) actually recorded an increase in sales in the first quarter of the 2020.
However, analysis by Teno shows that consumer stockpiling from January to March resulted in a sharp drop in sales from April to September this year for the infant formula industry. Each of the big four infant formula players have reported weaker sales for the second and third quarters of 2020, particularly in China and Europe.
Infant formula sales in China have slowed dramatically in 2020.
Danone said it recorded “steep double-digit” declines in revenue in China in the third quarter of 2020, while sales in Europe were down by as much as 10% since April. Meanwhile, Nestlé, the world’s largest infant nutrition company, said the market in China remains challenged, while sales growth in Europe had ground to low single digits.
US company Abbott said it was still seeing modest growth in its core market in the US but warned that sales in international markets are down more than 8% over recent months.
“The global infant formula market has certainly reached a tipping point. For the past 10 to 15 years, China has been the powerhouse driving demand with double-digit growth in imports for the past decade. This has now changed due to falling birth rates and Chinese government initiatives to support domestic brands,” said Teno Business Insight director Eamonn Burke.
This reputation provides a good foundation for Irish dairy processors to explore and develop new areas of the growing nutrition market
“The Irish dairy sector has strong track record in supplying high-quality ingredients to the infant formula sector, which is built on the quality of Irish milk and the sectors technology and processing capabilities. This reputation provides a good foundation for Irish dairy processors to explore and develop new areas of the growing nutrition market, which could provide attractive opportunities.”
Future
Over the last decade, Irish infant formula exports have doubled. And while the multinationals have retained almost all the hefty profits from this growth, farmer-owned Irish co-ops have benefited from having these customers here as it increased processing standards and capabilities, while creating extra demand for dairy ingredients.
Irish dairy co-ops sell probably 200,000t of dairy ingredients to infant formula companies here and abroad every year, while over half of all our whey powder now finds its way into infant formula. However, what is becoming increasingly clear from the infant nutrition multinationals is that the growth in demand for infant formula has ended.
With falling birth rates and shifting consumer trends towards niche sections of the market like goat, organic or A2 infant formula, the rapid growth we’ve seen over the last decade in infant formula has stalled.
Companies like Danone and Nestlé know this better than anyone and are now talking openly of reducing their numbers of brands in the sector and broadening their focus to adjacent areas like medical nutrition and infant foods or cereals where there is now rapid growth.
Danone's infant nutrition facility in Co Wexford.
Investments
For the Irish dairy industry, these are important signals about value-added investments for the next decade. Looking ahead, the infant formula multinationals will continue to be an important customer for large volumes of dairy ingredients.
However, the slowdown in growth means this section of the market will become an increasingly difficult place for Irish co-ops to do business. There are probably 30 companies across Europe that can produce the ingredients to the standard needed by these companies.
Ireland’s dairy industry has a good track record when it comes to developing new formats and technology solutions for dairy proteins
With this in mind, Irish dairy co-ops thinking about making investments in value-added products in the coming years need to look where there are new and fast-paced growth opportunities. One such area is the lifestyle nutrition or adult nutrition sector. This is a market that is growing globally but one that requires much more advanced processing capabilities to make high-value, specialised ingredients such as whey protein isolate, whey protein concentrate, caseinates and other dairy proteins.
Ireland’s dairy industry has a good track record when it comes to developing new formats and technology solutions for dairy proteins. By making these types of targeted investments in specialised ingredients, Irish dairy co-ops will be able to reap more of the profit margin that has so eluded them in infant formula.
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