Many millions of individuals who were born in China will never know what it's like to grow up with another sibling. But after 35 long years, China has finally decided to lift its controversial one-child policy, which has remained in place for more than three decades.
China's leaders first introduced the policy in 1979 to stem the country's rapid population growth at a time where resources were becoming increasingly scarce. The population had hit nearly a billion people and they believed limiting most parents to just one child would alleviate the pressure.
There have always been certain exceptions to the rules, and various concessions have been made in the time since, but that controversial policy was finally scrapped altogether last week, allowing all married couples to bear two children. And, somewhat ironically, it all comes down to demographics.
A new problem is born
China has enjoyed incredible economic success in recent decades, becoming the world's second-biggest economy behind the United States. Now, however, the country is growing at its slowest pace since the Global Financial Crisis with the baby limit now threatening to undermine growth even further.
Thirty-five years is a long time to cap the birth rate, and the country is now experiencing a brand-new problem. The working-age population is shrinking with millions of individuals approaching retirement age, with too few workers entering the labour force to replace them. That means slower growth and spending, which is a huge issue for a country desperately trying to transition from an economy driven by infrastructural growth to one fuelled by services and consumers.
In another case of irony, lifting the birth rate will actually increase the dependency rate for some time. It'll take years for those children to reach working age, and even longer for them to improve their education to begin careers and innovating new products to drive growth. Still, it may be the only way to ensure sustainable growth in the long-run, and the best way to prevent an extended period of economic stagnation.
Of course, lifting the birth rate is one thing, but ensuring the babies are well looked after is another. The scrapping of the decades-old one-child policy could indeed lead to a boom in all-things babies, ranging from toys and prams to the bare necessities like clothing and food.
A formula for success
China has historically been rocked by numerous food safety scandals, many of which have involved foods sourced locally. In fact, in one particularly severe incident during 2008, an estimated 300 thousand babies in China became sick from a contaminated milk product.
Instances such as these have created an enormous disconnect between the Chinese and local producers, with many individuals preferring to source their foods from western nations. While that's great for Australia's agricultural industry in general, the lifting of the one-child policy could certainly favour companies that specifically focus their attention on the baby and toddler markets.
Bellamy's Australia Ltd (ASX: BAL) is the most obvious, in my mind, as it provides a range of organic food and formula products for babies and toddlers up to the age of three. The company has gobbled up market share over the last year and enjoyed strong growth in China, largely due to its simple brand message of pure, Australian-made organic food.
Bellamy's manufactures its products through Tatura Milk Industries, a wholly-owned subsidiary of Bega Cheese Ltd (ASX: BGA), which also signed a new partnership with Blackmores Limited (ASX: BKL) late last week. The pair will now also develop and manufacture a range of nutritional foods, including high-quality infant formula, which could also be in very high demand in the years to come.
Foolish Takeaway
Australian agriculture has a rich history and is held in very high regard around the world. While the scrapping of the controversial one-child policy is great news for Chinese parents wanting to expand their families, a number of Australian corporations are also lining up for their share of the benefits. It could take many years for the story to play out but, in reality, that's what real investing is all about.
