Here’s an idea for Australia’s milk formula and other associated dairy products companies wondering how to renew growth – how about we target a developed market like the US and not continue to try and regain ground in China?
Not that Australian companies ever thought the well-supplied and protected US baby formula market would be available to take exports from down under, but a conjunction of unlikely events has seen it open – at least temporarily.
A shortage of formula triggered by the closure of a big US plant and several other events has seen a political crisis develop rapidly in the US, which in turn has forced the American government and regulators open the market to foreign produced milk products.
So Bubs Australia sealed a mega deal to send 1.25 million tins to desperate parents in the United States, and Monday saw A2 Milk join the rush and offer a deal of its own.
The two announcements saw the share prices of both companies jump sharply on Monday.
News of the deal saw Bubs Australia shares leap more than 50% on Monday before they settled back to end up 40% for the day at 68 cents.
And shares in A2Milk – a much larger rival jumped – ended up more than 10% on expectations it would follow Bubs and make an application to US regulators to allow it to ship formula to America.
That was confirmed in a statement to Reuters and the shares were up 13% at one stage for their best performance since February before closing at $4.77.
“We are able to provide support… leveraging our existing U.S. presence and distribution capability,” David Bortolussi, managing director and CEO of a2, said in a statement quoted by Reuters.
President Joe Biden spruiking the Bubs deal on Twitter himself on the weekend.
“I’ve got more good news: 27.5 million bottles of safe infant formula manufactured by Bubs Australia are coming to the United States,” Biden tweeted on Saturday local time.
Bubs could have shown the way, if it is allowed to continue to export its baby formulas, including goat’s milk formula, it makes at a factory in Melbourne’s south-east.
Founder and chief executive Kristy Carr started the business in 2006 from her kitchen table in Sydney’s northern beaches.
Bubs secured approval from the US Food and Drug Administration (FDA) on Saturday morning (AEST), allowing it to export six of its baby formula products to the US to help fill the country’s emptying shelves of formula.
Bubs says around half a million tins are ready to be sent to the US from the Melbourne factory, with another 750,000 being produced for export in the coming months.
A desperate FDA said last week that it was easing import rules on infant formula to help get rid of the shortage as quickly as possible. Up until the crisis hit in early May, 98% of the baby formula consumed in the US was produced in the country by the likes of Abbot.
In February, Abbott Laboratories closed a manufacturing facility in Sturgis, Michigan, after it recalled infant formula products when a federal investigation started after four babies taking the formula developed bacterial infections Two died but Abbott has said there is no link between its formulas and the illnesses.
Besides Abbott and its 47%, other US producers are Mead Johnson Nutrition, Nestlé USA and Perrigo. Only 2% of formula was imported and up till last week FDA rules made it very hard for new companies to enter the market.
Abbott is going to restart the plant under independent supervision by regulators. The restart will take around 2 weeks, but getting production back to its former levels could take a further two months.
Once the crisis ends, the big question for the Americans is whether the extra imports will be allowed to continue after the failure by Abbott to maintain output.
