The a2 Milk Company continues its onward march into China, the fastest growing segment of its market, as it posts a 116 per cent surge in full year 2018 profit to $NZ195.7 million.

The New Zealand-based company’s chairman David Hearn said as FY18 results were posted: “We have proved that our proposition has real international potential across multiple geographies and products”.

“We are building a genuine international brand and its growing strength is impressive.”

The company is listed on both the ASX and the NZX. Its reporting last week came about the same Walmart announced it would be stocking the tummy-friendly a2 products in 6,000 stores on US east coast and Texas.

Asia to consume half of the world’s food
Incredible upside is still possible in China. Powdered milk has proven to be the most reliable export model for Australian/New Zealand dairy producers.

Projections from the Australian government (2017 white paper) are for the Asian region to consume more than half the world’s food by 2030. A corresponding growth rate of two-thirds of the world’s total is a juicy target.

“The potential to continue to build on the momentum is significant,” Jayne Hrdlicka, A2 CEO said after the company reported last week.

“Both China and the US are big consumer markets wher the underlying focus on health and wellness and the increasing consciousness about food security and provenance play to our hand.”

Advertising into the China region has increased significantly . This includes its first TV ads, social media, live streaming and publications of clinical trials. Store numbers in China have almost tripled in the last year – from 3,800 to 10,000 brick and mortar destinations, adding to the 6,000 US stores. The company has flagged it will spend $US22 million on US marketing next year.

A2 explained
The New Zealand-based company has developed a genetic test to identify cows that only produce a2 beta casein protein (most milk contains A1 and A2) so their milk can be segregated and marketed as a more gut-friendly option.

about 30 per cent of cows produce just A1, and 30 per cent just A2, with the rest producing a milk with combination of both. However, as milk from all these cows goes into the same pool, “regular” milk typically contains A1 and A2. The company claims that A1 may be responsible for digestive discomfort experienced by milk drinkers that cannot be attributed to lactose intolerance or milk allergy (both of which can be determined by diagnostic test).

Three human clinical trials on a2 milk have been published in peer-reviewed journals over the past four years that lend credence to the company claim that many consumers who believe they can’t tolerate lactose (milk sugar) should really be blaming their digestive discomfort on the A1 beta casein protein in milk.

Exclusive China imported deal sealed
As recently reported, a2’s arrangements with China State Farm, the company’s exclusive import agent for China label infant nutrition products into mainland China, were extended for a further three years, to December 2021.

Intellectual Property though remains a significant risk in China. It takes little searching to find a wide range of knock-off products at massive discounts to the original products.

Fortunately, this impact is lessened in food products. Recent scares over the quality of infant formulae manufactured in China has ushered in reputable ANZ brands.

The company continues to take steps to minimise the risk of product substitution and counterfeit, particularly for infant formula in China.
This includes improved security technology and advances in quality and authenticity proof points.

At the same time, the company advanced its growth strategy launching three new products (a2 Platinum® Stage 4 milk powder, a2 Platinum® pregnancy formula and a2 Milk™ powder blended with Mānuka honey.

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