China’s birth rate has suffered a structural decline over the years – a hangover from the one-child policy, which was instituted back in 1979.
Last year, Beijing loosened rules on marriage registration which had stipulated that couples had to register their marriages in the location of their household registration, or hukou, which was inconvenient for migrant workers living outside their home province.
The birth rate took a hit during the Covid years before stabilising in 2024 – the Year of the Dragon, and a popular year for getting married and having children.
The infant formula industry is pinning its hopes on the marriage rate picking up in 2026 – the Year of the Horse – which, in terms of auspiciousness, is around the middle of the field.
While the big drop in the birth rate in 2025 is a setback, a2 Milk has in the past shown some resilience to the trend because it has continued to increase its market share, thanks in part to China’s expanding middle class.
At last November’s annual meeting, a2 Milk forecast revenue growth of low double-digit percentage growth.
It also said the English label infant formula revenue growth was expected to be significantly higher than China label revenue growth.
The company last year said its overall China market share put it in the number four brand position with 8% overall market share in what is easily the world’s biggest infant formula market.
While the falling birth rate in China is far from ideal, a2 Milk may end up benefiting from Nestle’s product recall of some of its formula products over concerns they may contain a toxin that can cause food poisoning.
This week, international news agency Reuters reported the scare had widened to include French food giants Danone and Lactalis – a2 Milk’s main foreign competitors in China are Nestle, Danone and Friesland Campina.
Domestically, a2 Milk is up against Feihe and Yili.
Infant nutrition is a2 Milk’s core business in China, but it wants to be relevant from pregnancy right through to late-stage life nutrition as well.
The company’s half-year result on February 16 is expected to update the market on its progress with nutrition products aimed at beyond the infant years.
Likewise, updates on its push into Vietnam, its new product “Genesis” and the two new China label products that came with its purchase of a factory at Pōkeno are expected.
Forsyth Barr senior analyst Matt Montgomerie said a2 Milk’s share price reaction may appear harsh at face value, but it was important to recognise the lagged impact of new births on infant formula sales (over two-thirds of revenue is in Stage 3 product and beyond: babies aged 12-months plus).
The a2 Milk share price fall meant the company had gone from trading at a very expensive end to “merely expensive” valuation levels – its 12-month forward price earnings ratio had de-rated from 34 times to 30 times, versus its five-year average of 26 times, Montgomerie said.
He said the lagged impact of births on infant formula sales meant calendar year 2027 would be the most impacted by this weakness.
The company’s share price recovered a little yesterday to around $9.70, but was still a far cry from its $11.00 traded price before the birth rate data were released.
In terms of whether the sell-off is justified or not, it looks like the market will have to wait until the February 12 update for answers to that question.
Water everywhere
The power companies are at least benefiting from very wet conditions throughout most of the country.
Meridian Energy chief executive Mike Roan said the wet spring and early summer had been good for the company and the broader electricity market.
“We’ve begun 2026 in a very strong position when it comes to hydro storage,” he said.
“Inflows, current storage and remaining snowpack are all well above the long-term averages, which has meant we’ve had extended periods of spilling in both the Waitaki and Waiau catchments since early December.
“This has resulted in low wholesale prices. Our average generation sales price was under $7 per megawatt hour [MWh] in December, and an average of $77MWh for the first six months of this financial year, half the level of the same period last year.”
He pointed to the Government-funded Frontier Economics report, which said the wholesale market is working as it should.
“Overall, we’re generating and selling more at this point of the financial year than we were a year ago,” Roan said.
Generation volumes are 13% higher and retail sales volumes 12% higher than the first half of the last financial year, he said.
NZX data this week put the average wholesale market price of power at just 92c/MWh.
Meridian is 51% owned by the Government, as is Mercury and Genesis.
Mercury said national hydrological inflows of the 98th percentile were reflected in lower wholesale spot electricity prices averaging $40/MWh in Auckland for the December quarter.
Forward prices in Auckland for the financial year 2026 have eased considerably to $135/MWh due to high inflows and above average hydro storage levels, it said in an update.
National demand was up 3.1% for the quarter relative to previous comparable period (PCP), primarily due to New Zealand Aluminium Smelter resuming normal operations after a period of demand response curtailments.
Meridian Energy spilling water at Aviemore.
Genesis Energy said it had delivered a solid second-quarter performance for 2026 and upgraded its guidance for the current financial year.
The company now expects normalised earnings before interest, tax, depreciation and financial instruments of $490m–$520m in 2026, compared with the prior guidance range of $455m–$485m.
The company said strong hydrology and fuel management had increased its flexibility.
This led to record-low thermal generation by Genesis, which runs the coal and gas-fired Huntly Power Station.
Genesis said its lake levels increased from 88% of average at September 30 to 122% of average at December 31.
Contact Energy said that on January 19, South Island controlled storage was 129% of the mean and North Island controlled storage was 145% of the mean.
At the same time, total Clutha scheme storage was 117% of mean.
Contact also said it had closed its long-serving Taranaki Combined Cycle gas-powered station on January 1 and had started decommissioning it.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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