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Baby food shortage in the US creates opportunities for Dutch producers
Mathieu Geuskens published on June 27, 2022
A-INSIGHTS believes that the use of data is increasingly important for making the right strategic decisions. This month, we look at the baby food market, which has been in the news a lot in recent weeks: in the U.S., there were empty shelves because one of the largest manufacturers in the country, Abbott Nutrition, had to shut down its factory in Michigan after several children contracted a bacterial infection after drinking their baby food. In this article, we analyse why this closure has such a major impact and what opportunities it may present for Dutch manufacturers.
US market structure causes limited imports, China remains largest importer
The reason that the shutdown of a single plant has such a large effect on the availability of baby food is mainly due to the consolidation of the baby food market in the US: in a 2011 report, the USDA, the US Department of Agriculture, estimated that the combined market share of the three largest domestic producers was 98%. Due to the structure of the U.S. market, where almost half of the baby food is subsidised through government programmes working exclusively with these large producers, the combined market share of these parties has hardly changed in the past 10 years.
Due to this market structure, U.S. imports of baby food are limited: in 2021, the country imported 17 thousand tonnes of baby food (2019: 9 thousand tonnes). The U.S. share of total baby food imports is thus limited. A large part (~25%) of the total trade is destined for China, where consumers have little confidence in domestic producers since the baby milk scandal in 2008. Notable is the sharp decline in Chinese imports in 2021, which may be driven by the logistical problems the country is still experiencing due to corona.
Figure 1. Biggest importers of baby food on the basis of o.a. milk, 1.000 tonnes
Shortage creates opportunities for Netherlands as world's largest exporter of baby food
Dutch producers have already indicated that they would like to help solve the shortages in the US, but are running up against long approval procedures and other import restrictions. However, a White House press release issued on 12 May brought good news in this respect: the American government appears to recognise that protectionist trade policy can cause risks in this case and has indicated that it wants to increase the share of imports in the supply of baby food.
This offers opportunities for the Netherlands: with an export volume of 191 thousand tons in 2021 (2020: 236 thousand tons), the Netherlands is the largest exporter of baby food in the world. Most of the exports are produced in the Netherlands (2020: ~90%), another part is only exported. Other major exporters are France, New Zealand, and Ireland.
Figure 2. Largest exporters baby food on the basis of o.a. milk, 1.000 tonnes
Around 55% of Dutch exports have China as their final destination, with the dependence this creates is illustrated by the sharp drop in Dutch exports in 2021 (-19%). The same pattern is visible in Ireland, which, like the Netherlands, experiences a sharp drop in exports in 2021 (-36%) due to lower imports from China.
Figure 3. Destination dutch export baby food, 1.000 tonnes
The shortages in the U.S. and the possible relaxation of the import policy offer opportunities for the Netherlands. On the one hand, it is a large new sales market, and on the other hand, Dutch producers can reduce their dependence on Chinese imports. Based on the most recent production volume of 219 thousand tonnes (2020), the Netherlands has sufficient capacity to supply other markets in the event of lower imports by China, whereby its good infrastructure and logistical connections provide an advantage.
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