ATM - A2 Milk Corporation Limited

[MAC]

Either way ATM are happily growing revenues at 45% p.a without any infant formula sales in China.

It is easy to forget that China has not got an open democratic government and bureaucracy and it does seem from recent media commentary that the regime there may intend to generally knock the quality and therefore price of imported infant product. The latest Fonterra news may probably provide some further fodder for this aim.

It would be interesting to hear from posters with a ‘having lived in China’ perspective as to what the retail market perceptions on the ground are really like. Would A2 as the brand with the greatest premium health benefits have greater traction over its competitors in such an environment, or, is the market booming to the point where all infant formula brands are simply just golden ?.

ATM are well diversified across other markets and infant formula sales don’t commence in China until next month. Thus there can be not much short term impact, longer term I don’t see the Chinese market getting smaller for NZ brands, in fact it is estimated to double by 2016.

[MAC]

Joshuatree, given the present investment by ATM in new markets, have you considered what FY14 results may look like ?. I would encourage you to DYOR, you may be presently surprised.

[Joshuatree]

Thanks MAC , will do.

[blobbles]

Either way ATM are happily growing revenues at 45% p.a without any infant formula sales in China.

It is easy to forget that China has not got an open democratic government and bureaucracy and it does seem from recent media commentary that the regime there may intend to generally knock the quality and therefore price of imported infant product. The latest Fonterra news may probably provide some further fodder for this aim.

It would be interesting to hear from posters with a ‘having lived in China’ perspective as to what the retail market perceptions on the ground are really like. Would A2 as the brand with the greatest premium health benefits have greater traction over its competitors in such an environment, or, is the market booming to the point where all infant formula brands are simply just golden ?.

ATM are well diversified across other markets and infant formula sales don’t commence in China until next month. Thus there can be not much short term impact, longer term I don’t see the Chinese market getting smaller for NZ brands, in fact it is estimated to double by 2016.

I live in China. Consumers here are mostly relieved, they are holding up Fonterra as a model for how Chinese companies should operate! Actually recalling a product that has potential safety implications is unheard of in China so they are amazed its happening and most free thinkers (who are very popular in social network sites) are saying Fonterra is doing a good job. Chinese companies would simply let products go to markets with huge problems, if they find out there is something wrong with them, they wait until consumers report a problem before 1. Trying to cover it up and if that doesn't work 2. Saying its isolated and 3. Recalling product ONLY if its forced to by the government. Then, most of the time, they will mix in the recalled product with fresh stuff to dilute problems. Amazing, but it happens all the time.

The problem here is the government reaction. They are on the verge or in process of recalling EVERY Fonterra product. Which, by the sounds of it, is a complete over-reaction. The government has been doing quite a lot of anti-foreign company/anti-foreigner activity recently however, trying to instil a greater sense of nationalism in its people while falsely trying to portray foreign companies as being the bad guys, or having just as many problems as Chinese companies, if not worse. This is a worrying trend in China and appears to be the government gearing its citizenry up for a future war. A bit scary. The media here is all under the thumb of the government so the result is they can control what people believe. Fortunately there are social networking systems which aren't as easy to control which show what people really think.

[blobbles]

The sentiment is almost always anti foreign company, making them out to be evil. Most likely if its a milk scandal, it doesn't matter which companies are involved all foreign milk will take a hit. Although it will most likely be a blip. If its a food they need, they will have the attitude "What can we do?" and keep using it, mostly likely without coming to any harm.

Chinese people have a modern saying about this though (roughly translated): "The best people in the world at killing Chinese people are: Chinese people".

[MAC]

Blobbes, if Fonterra product is suspended, and there was already a shortage of supply on the shelves, do you think the local producers will be able to pick up the slack or will retail prices just temporarily leap ?

[blobbles]

It will take a while for stocks to run down in most places except the East coast cities. Its unlikely locals are in any way able to replaces the shortage of supply, you are talking about thousands of tonnes of milk powder being produced/packaged/distributed in a short time span. It is likely locals may switch to normal fresh milk though - not the best supplement obviously but if they have no choice, they will do it.

Likely though they will simply keep using it as there is nothing really comparable on the market. There are a few other foreign brands that can take up some slack (Nestle is one, but I wouldn't trust Nestle products as far as I could drop them) but you can only milk a cow for so much! And likely if the government issues recalls and demand spikes, the products will still be sold or will find their way out the back of the governments trucks into the highest bidders hands. No I aren't joking.

[MAC]

At least the exposure for ATM is only one shipment of product, nothing in the big picture. Anticipate FSF and SML to a lesser extent to be impacted though at the opening tomorrow.

[blobbles]

To show you how dodgy China can be - about 6 months ago some rice was imported from China to the US. They found traces of heavy metals, something like 10x the allowable limit, so sent the shipment back to China. When it hit Chinese shores, it simply vanished. Nobody knows where it went. But most people believe it is back in their food supply, diluted through other rice. Or ground up and used for baozi (little Chinese buns) pastry.

Just the other day I heard of another producer not far from here who was soaking cardboard in acid to soften it so it could be used as filler for baozi pastry. Then there is the fake meat that is everywhere (made from god knows what). Then there is the oil they get out of the drains of restaurants and "reprocess" it into cooking oil (which means taking out some dirty bits) which they sell back to other restaurants.

Frankly the locals have a lot more to be scared about than the one in a billion chance that they could possibly get botulism from whey protein (which sounds absurd considering the post processing which should kill most bacteria).

[MAC]

Must be fascinating to watch over there. Do appreciate your posts Blobbles, if you could keep us all informed over the coming days that would be just fantastic ?