A2 Milk changes Chinese supply approach for infant formula   21 Nov 2014

A2 Milk changes Chinese supply approach for infant formula

By Suze Metherell

Nov. 21 (BusinessDesk) - A2 Milk Co has agreed to make China State Farm Holdings Shanghai the sole importer of its a2Platinum infant formula while the milk marketer will take over the distribution in Asia's largest economy.

Under the deal, CSF will exclusively import the infant formula and provide government relations and advice, while the Auckland-based company will takeover distribution in China and expand its network, a2 said in a statement.

The revised distribution agreement comes after China tightened its rules, banning unregistered imports of infant formula, and required brands and importers to show close links with the product's manufacturer in a bid to bolster food safety in the country's rapidly expanding baby powder market.

A2 missed out on the first round of licensing with Christchurch-based Synlait as they waited for Synlait's new dry blending and packaging factory to be built, and inspected by local food safety authorities.

"The revised arrangements take into account the current commercial objectives of both a2MC and CSF and provide an improved model for both parties in the new regulatory environment to support the development of the infant formula business in China," a2 said. "A2MC is confident that the original market entry plan for infant formula into China can be attained and significant further growth achieved as a result of these changes. A2MC is also confident other a2 Milk products have considerable potential in China and other Asian markets as well."

In August, managing director Geoffrey Babidge called the Australian market a2's "big cash generator", and said it will bankroll its push into new markets. The company is planning to become a dual-listed stock next year, with a listing on the ASX in a bid to capitalise on its Australian presence, where it generates more than 96 percent of its total sales.

Shares of a2 last traded at 60 cents, and have fallen some 38 percent from its February peak of 97 cents.

(BusinessDesk)

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