Bellamy's organic infant formula derails in China

The misfortunes of organic infant formula maker Bellamy's demonstrate that value-add dairy is not an easy game, writes Keith Woodford.
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OPINION: For the last two years, Bellamy’s organic infant formula out of Australia has been one of the two rising stars of the Chinese infant formula market. The other has been ‘a2 Platinum’ produced here in New Zealand by Synlait for The a2 Milk Company (ATM).
In recent weeks, the Bellamy’s business has run badly off the tracks. This has sent jitters more widely through the infant formula industry.
First, there was a cautious market guidance release by Bellamy’s on December 2, and the Bellamy’s share price immediately crashed 40 per cent. Then on December 12, Bellamy’s asked that its shares be suspended from trade for 48 hours while the company assessed its position. This suspension has subsequently been renewed twice and currently runs through to January 13 while further assessment occurs.
It is now apparent that Bellamy’s had been losing market share for some months, but things really went awry during the second half of November. Bellamy’s has blamed regulatory disruption and competitive price-cutting in China for their problems.
The market-fear contagion spread rapidly to ATM investors, and ATM shares suffered a reactive decline in early December approaching 20 per cent. However, ATM has assured its shareholders that its a2 Platinum sales continue to grow strongly and that all is well. Increasingly, it is looking as if many of the problems are indeed specific to Bellamy’s and perhaps some other companies to a lesser extent, but that there continue to be winners as well as losers. The challenge is to identify who fits into each category.
Source: Stuff

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