Fonterra, A2 Milk awaiting FDA approval to export formula to US
Two of Australia and New Zealand’s biggest dairy companies are still yet to gain approval to export infant formula to the US despite America’s deepening baby food crisis.
Two of Australia and New Zealand’s biggest dairy companies are yet to gain US Food and Drug Administration approval to export infant formula despite a deepening of America’s baby food crisis.
Fonterra – the world’s biggest dairy exporter and one of New Zealand’s biggest companies with an extensive presence in Australia – has been awaiting approval since late May. It is now reallocating infant formula stock that it had earmarked for the US back to New Zealand to stop it from perishing.
The move comes after New Zealand’s Prime Minister Jacinda Ardern met US President Joe Biden in the Oval Office last month after he launched “Operation Fly Formula”.
Publicly released remarks released ahead of the meeting, in which Mr Biden referred to Ms Ardern as a “not-so-old but good friend” – made no mention of baby formula or infant nutrition, let alone two of New Zealand’s biggest companies prepared to release millions of cans of the product for American parents.
James McVitty, Fonterra’s manager of trade strategy, sustainability and stakeholder affairs for the Americas said the company had yet to gain approval from the FDA.
This is despite the availability of infant formula products in US retailers diving to the lowest level so far this year, with about 30 per cent of products out of stock for the week ending July 3, according to market-research firm IRI
“We have informed FDA that it is our intention to reallocate the infant formula stock we had earmarked for the US to New Zealand or other markets as it has a limited life span,” Mr McVitty said.
“In the future, if we gain enforcement discretion we will reassess infant formula volumes available to send to the US.
“In addition, we will continue to support other infant formula manufacturers approved for sale in the US with base infant formula powder ingredients.”
A2 Milk, a $3.4bn dual-listed ASX and NZX dairy company, also applied to the FDA in May to grant it “enforcement discretion” or the ability to sell millions of cans of its Platinum-branded baby formula in the US to help ease its chronic shortage. But is yet to gain approval, unlike smaller rivals Bellamy’s Organic, now owned by China’s Mengniu Dairy, Care A2+, and Bubs.
The FDA – which has not granted any more temporary approvals since July 8, after giving a dozen companies the green light – is understood to be bogged down in more than 100 applications from foreign infant formula companies.
“The FDA continues to work around the clock with our government partners and industry to ensure there’s adequate infant formula available wherever and whenever parents and caregivers need it. More infant formula will be available in the weeks and months ahead,” the agency says on its website.
Sources familiar with the FDA’s processes, say that the agency triages applications based on a range of criteria, including the ability to send products quickly to the US and control supply chains.
While there are scores of infant formula brands, few own factories and rely on contract manufacturers, hindering their ability to oversee operations completely.
A2 Milk has largely used NSX-listed infant formula producer Synlait and more recently Fonterra to produce its Platinum-branded product. In late 2020, it began the path to transition itself from being solely a brand owner to manufacturer, acquiring a majority stake in Mataura Valley – a poorly performing infant formula producer that was searching for a buyer to fulfil its obligations to its Chinese financiers.
At the time, then chief executive Geoff Babidge said the company envisaged it would produce up to 50 per cent of A2’s Platinum brand infant formula, with the company maintaining contracts with Synlait and Fonterra to produce the rest.
As part of the FDA approval process, a paper-based audit of the manufacturing site is required. Synlait referred questions about this process to A2 Milk, saying it was the brand-owner, not the manufacturer, seeking approval.
A2 referred to comments its chief executive David Bortolussi made in late May, saying “we are able to provide support as one of the leading international infant milk brands, leveraging our existing US presence and distribution capability”.
A2 has an established US presence, launching about five years ago and in 2020 revealed a target for America to contribute $100m to its revenue. But that was based solely on fresh milk, which it has recently expanded to flavoured products under a partnership with confectionary giant Hershey’s.
The view within the company was it was better focusing on exporting its infant formula products to China and elsewhere in Asia – a market which has since collapsed after a two-year long international travel ban – rather than America where multinationals had created a oligopoly.
It was a strategy that put A2 on the backfoot when Abbott shut down its factory in Michigan earlier this year on contamination concerns, sparking a mass shortage of essential infant nutrition. Six months on, availability of powdered formula in the US has dropped to its lowest level this year, with 30 per cent of products out of stock.
In contrast, Bubs – which has a market value about a tenth of the size of A2 – launched a bold American plan before the Abbott shut down, which allowed it to quickly gain temporary approval. The company was months into the approval process when the FDA began seeking applications from foreign manufacturers to combat the infant formula shortage.
The last thing the FDA wanted to face was another contamination scare or opening the door for hoards of foreign brands to supply the US market without any safety or nutrition checks.
Bubs has committed to supply 1.25 million cans of infant formula – the equivalent of 33 million bottles – and has secured a concession on paying the 17 per cent import tariff.
Bellamy’s Organic and Care A2+ have committed 4.9 million and 696,000 cans respectively to the US.
For those that have received approval, the FDA has launched a “streamlined” path to permanent access to the US market, with Commissioner Robert Califf saying the “need to diversify and strengthen the US infant formula supply is more important than ever”.
“Given that success, the FDA has determined that a more streamlined pathway that leverages information we have received for the products for which we are temporarily exercising enforcement discretion would help provide for the long-term availability and marketing of many of them.”
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