Tuesday, November 17, 2015

Milk product sales to China are on the boil | … and the grey market is a big help

The A2 Milk Company is a relatively young addition to the milk products companies operating in New Zealand and Australia who are finding that demand from China, particularly for baby formula, is a very significant source of revenue and profits. Yesterday it announced that it was almost doubling its full-year earnings guidance, as a direct result of what the company calls “exponential growth” in infant formula sales into China.

China suffered a devastating scandal in 2008 when it was discovered that home-produced baby formula was contaminated, leading to ill-health for more than 300,000 Chinese children. Since then, demand there for product from countries that are known to have superior quality control supervision at state level are in demand. The possession of a green and healthy environment is no hindrance here either. And the recent changes in the one-child policy in China, allowing couples to have at least two children, while it will take a little while to build up, is bound to have a beneficial effect.

This is also very good news for Irish milk producers and processors. Ireland has recently won favoured status for the export of farm and dairy produce to China. Here again, the care with which the agricultural sector is managed in order to ensure safety, as well as the sometimes grating for natives ‘Emerald Isle’ image, must be of assistance.

… and the grey market is a big help

According to an article on www.vice.com, there is a booming trade in grey market sales of baby formula to China from Australia, in particular. Chinese tourists, students and even business people are sending these products via specialist vendors, who also arrange transportation. Sent as personal goods, these packages are able to circumvent the considerable tariffs that exist on imports into the People’s Republic. A nice little earner, apparently, and no doubt a useful addition to the bottom lines (if not an explicit part of the business plan, as in "We get Chinese ex-pats to take care of transportation and customs clearance for us") of firms like the A2 Milk Company.

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