Are Australian dairy companies turning around the corner?

Team Veye | 12-Aug-2022

In 2019, China issued plans to strengthen domestic infant milk industry with an aim to increase domestic supply to more than 60% in the market. The plan involved stricter manufacturing quality standards to improve parents’ perception of Chinese brands.
 
Ever since the trade in this sector, between the two countries had been slowing down, not only because of the tariffs but also due to slip in attitudes from local consumers and importers to Australian products.
 
Australian dairy exporters suffered the fast imposition of Chinese government rule changes and/or the deregistering of factories, scuttling a remunerative market opportunity. Chinese importers and supply chains also distanced in a bid to avoid the risk of dealing with Australian companies.
 
China has been a major market for Australian dairy exports. In 2019, the value of Australian exports was US$2.34bn of which China represented 45%. The significance of IMF can be realised by the fact that IMF constituted 56% of all dairy exports, by value, to China.
 
The Industry got a shot in the arm when, to counter the shortage of baby formula in the US, President Joe Biden announced the ‘Operation Fly Formula’, to import supplies.
 
Subsequently, USA Food and Drug Administration (FDA) announced that it will exercise discretion for the immediate import, sale and distribution of all six Bubs Infant formula products into the United States under the agency’s recently released Infant formula Enforcement Discretion policy.
This further led to the Company entering into a new supply agreement with Target USA and Walmart Inc (Walmart), increasing its exposure substantially in the United States.
 
The a2 Milk Company also, on 2 August 2022 responded to a media article which was suggesting that the Company was nearing approval from the US Food and Drug Administration (FDA) to allow a2MC to import infant milk formula products into the US.
 
The Company confirmed that while it had been informed by the FDA about its application is under active review, at this stage there was no certainty as to the outcome of the application or the timing of any approval.
 
The US baby formula shortage has accelerated Australian Companies’ yearning for growth. But, as the current FDA guidance about the temporary enforcement discretion is in effect until 14 November 2022, the question to be mooted is whether this remains a one-off due to the baby formula shortage, or will the sales/network relationship remain in place afterwards.
 

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