Mrs Chen counts herself lucky to have a friend who is able to send her a regular supply, even though, with postage, she pays $55 a can, more than double the Australian retail price. Like many Chinese, she believes Australian-made infant formula is superior to local products and has been warned stock has been hard to come by.
“My friend told me it was selling out so she went (to) several supermarkets and just got three cans,” she said. “I know Chinese people are sweeping the Australian supermarkets for powder and that probably isn’t right but we have no choice. We can’t trust milk powder made in China.”
Ms Chen — like every other mother, anxious to give her baby the best start to life — is a key player in the “white gold rush” of trade in “clean, green and safe” milk to meet the insatiable demand of Chinese families. That chain begins with dairy farmers such as Mark Billing, from Colac in Victoria, who sells his milk to dairy processor Fonterra Australia, which controls about 31 per cent of Australia’s milk powder manufacturing market.
With numerous plants around the state, the company refines the milk into nutritional powders for its customers, mostly infant formula brands, who supply them to domestic and international markets. The big supermarket chains Coles and Woolworths and large pharmacy banners, including Chemist Warehouse, factor large in the picture, selling so many tins of formula they have imposed limits of four cans per customer.
Reports of empty shelves after customers — often Chinese tourists, migrants or students — remove stock by the pallet-load to sell online at home at inflated prices have caused an uproar among frustrated parents and consumer groups, who have called on the government to intervene.
The burgeoning grey market, which is easily adding tens of millions of dollars to Australia’s official exports of infant formula, has been aided by an internet shopping boom in China, where sites such as the eBay-like Taobao and Tmall Global enable middle-class consumers to source goods from overseas. The phenomenon has sparked a rush of Australian companies setting up online in China. Woolworths is set to follow Metcash, Chemist Warehouse and Australia Post on to Tmall Global.
All players along the way appear to be cleaning up. Except the farmer, whose milk is the source of all the clamour.
“We’ve heard about this big China opportunity that’s been coming for a while now and in some respects I think we’re still waiting for it,’’ said Mr Billing, a fourth-generation dairy farmer who milks more than 400 cows on his farm west of Colac.
“It’s a little bit frustrating when at the farmgate we haven’t really seen the returns that seem to be available to some.’’
Agriculture Minister Barnaby Joyce this week went in to bat for farmers, claiming they were missing out on the benefits of the baby milk boom and should be paid more for their milk. In Beijing to meet ministerial counterparts, Mr Joyce stressed that Chinese consumers should not be prevented from buying Australian milk powder as it was a prime opportunity for the domestic dairy industry.
“The problem is not solved by insisting that people not be allowed to buy the product; it’s solved by creating opportunities for more people to buy the product,” Mr Joyce said.
With China’s $17 billion infant formula market having grown at a rate of 25 per cent a year in recent years, and the overhang from contamination scandals forcing parents to source supply from outside the mainland, there’s money to be made.
Many of the major dairy processors, including Murray Goulburn, Fonterra Australia and the Bega-owned Tatura Milk Industries, have ramped up production of infant formula base powders to service their customers, including global giants such as Mead Johnson and Beingmate. However, the increased activity has yet to translate into a boost to milk production or farmgate milk prices. While Australia’s annual production is tipped to grow 2 per cent to 9.8 billion-10 billion litres this financial year, the forecast is lower than the peak output of 11.5 billion litres at the turn of the century.
Meanwhile, the major processors pay the farmers a set farmgate price — this year’s opening price in the export-focused states started at $5.60-$5.80, slightly down on last year — regardless of whether the milk goes towards making a commodity product or high-value infant formula.
Barry Irvin, chairman of Bega Cheese, which recently struck a deal with Blackmores to make infant formula especially for the Chinese market, conceded there was no doubt profit margins increased along the supply chain.
“Infant formula is a complex product … If you look at a can and the list of ingredients, so much is added beyond the original milk product … Australian dairy farmers might be saying that they’re not benefiting but if we took the value-added products, like infant formula, out of the market and relied more on the international commodities market, the farmgate price would be much lower,” he said.
Two formula brands disappearing from shelves, destined for China, are new entrants: Bellamy’s Organic and a2 Platinum. Bellamy Australia, headquartered in Tasmania and with offices in Shanghai, Hong Kong and Singapore, was valued at $100 million when it floated last year. Its decision to move into the Chinese market has seen sales and profit surge, pushing its share price up 500 per cent since the start of this year, valuing it at $900m.
The brand has an impeccable safety record. Its power was apparent this week when its Tmall Global site sold out of stock in the lead-up to China’s Singles Day sales, the world’s largest online shopping event.
Bellamy’s last week blamed the unprecedented demand for the recent shortage of supply in Australia, assuring customers stock levels would improve by the end of this month.
Brands A2 and Karicare, which have shopfronts on Alibaba’s Tmall Global site, are understood to have experienced similar runs on their products.
While it’s impossible to quantify the size of the grey market for infant formula, Bellamy’s suspects that 30 to 40 per cent of sales of its products in Australia, which more than doubled to $107m last year, are being snapped up by customers who then resell at a premium via e-commerce platforms in China.
Bellamy’s official China sales, achieved through its own website, Tmall Global shopfront and to Chinese distributors, paled in comparison at $14.3m.
The Weekend Australian has spoken to several buying agents, who claim it is possible to earn six-figure salaries shipping healthcare products, including infant formula, back to China.
Chinese Premier Li Keqiang has warned against any restrictions of mainlanders’ overseas purchases and wants to provide them with even greater freedom in what they buy. “Chinese people are getting rich and they want to live a better life,” Mr Li said at a State Council meeting on Wednesday.
Source: The Australian
