Milk powder ‘wars’ have only just begun. Here’s why

THE scarcity of baby formula is causing fights in supermarkets. If you thought the issue had reached boiling point, there’s worse to come.

CHINESE demand for milk powder has been hitting the headlines recently, causing fights in supermarket aisles.

You might think this is a weird, small issue that is at its peak. Think again.

China just last month abolished its one child policy. All Chinese couples can now have two kids instead of one and experts expect an extra 10 million babies to be born in the next few years. Those hungry mouths will add to China’s existing population, the biggest in the world.

Chinese demand for Australian-made infant formula is gigantic. A poisoning disaster in China’s domestic milk powder market a few years back left thousands of babies sick and many died. Chinese markets are full of fakes of all sorts. You can’t blame parents for wanting to buy guaranteed safe milk powder. Any parent would do the same.

An angry Facebook post appeared this week showing customers buying trolleys full of baby formula at Woolworths, Epping Plaza despite the supermarket's four tins per customer limit. Picture: Facebook.

But there have been tantrums in aisle nine recently as certain brands come under massive demand pressure and limits per customer are not enforced. (A limit per customer is rarely a good policy. It is easy to circumvent and whenever you use it, it means the price is set too low. Rationing should be saved for wartime.)

Chinese demand for our dairy has been on the up and up as that country gets richer. When people no longer have to live in poverty, the first thing they do is add protein to their diet. Millions of Chinese people whose parents lived on the brink of starvation are now middle class and eat in restaurants.

This is causing a big shock to world markets and an export frenzy from nations like Australia and, especially New Zealand. Australia is growing its exports to China but we are far behind NZ — as this next graph shows.

Chinese dairy imports.

Normally, export frenzies happen somewhat behind the scenes. Massive dairy corporations export dairy to Asia and make billions of dollars a year. We don’t notice.

But with the recent boom in Chinese tourism, the export process is happening before our very eyes. Chinese tourists (and students, residents and citizens with links back to China) are buying up milk formula in the shops and exporting it themselves.

More tourists equals more milk formula being taken back to China.

On Taobao (the Chinese eBay) you can buy a 900 gram tin of Bellamy’s organic milk for $53. At Coles it’s $17. So it is three times more expensive in China. No wonder it is being exported.

It’s easy dollars for anyone selling the formula in China.

A few people see this as a fight, but I prefer to see it as a triumph. Australia is making something the rest of the world trusts, wants badly, and is willing to pay top dollar for. This is a vote of confidence in our clean, green reputation — it should give us great economic confidence.

Investors are certainly showing confidence in Bellamy’s. The Tasmanian company’s share price is booming.

Not a bad investment.

Food manufacturing has a big future in Australia, and it is great news for the bush as well as the cities, says Phil McFarlane, the CEO of Camperdown Dairy International.

“There is a requirement from [China] to have it packaged at source. Milk would be sourced in the western districts, we’d have it packaged and processed in Camperdown.”

McFarlane is a country boy who went to the city to pursued a career in investment banking, but is now back in agriculture. His company has facilities in the small Victorian town of Camperdown, and a license to export infant formula straight to China.

“They want the guarantee we can deliver a certain amount of tins or tonnage each year … We are looking to build a bigger facility down there that will employ 60 to 70 people per shift. Then there’s logistics, handling effluent etc. The economic development is big.”

The reason we will win the milk powder war is it is a war against hunger — and Australia’s on the side of the food.

Jason Murphy is an economist. He publishes the blog Thomas The Think Engine. Follow him on Twitter @jasemurphy.