Lucrative Chinese ‘daigou’ trade dries up under Daniel Andrews’ Victorian lockdown

Past riches failing as lockdown hits business at companies such as A2 Milk and Blackmores.

China is particularly lucrative to A2 Milk, representing almost half A2’s infant nutrition sales. Picture: AAP

Victoria’s stage-four restrictions has almost cruelled the lucrative daigou trade between Australia and China as tensions between the two countries continue to ­escalate.

The daigou, or trusted shoppers who are either students or tourists, would buy up Australian goods on behalf of Chinese consumers and export them to China.

It is a market that has split into two sectors — basic retail and the more sophisticated “corporate buyers” — and which has delivered riches in past years to companies such as A2 Milk and Blackmores.

But uncertainty surrounds the near-term outlook of the daigou market. In June, China warned students to rethink travel to Australia over alleged racism, while the Department of Foreign ­Affairs and Trade also warned Australians not to travel to China as Beijing had detained foreigners for allegedly “endangering ­national security”.

Further putting a handbrake on the daigou trade is the forced closure of stores across Melbourne that stock infant formula and healthcare products, which are popular among Chinese parents.

A2 Milk Asia-Pacific boss Peter Nathan said that while the company’s financial outlook remained unchanged at this stage, the retail daigou had softened considerably from travel restrictions, while the extension of Victoria’s stage-four lockdown to at least October had hit the corporate end.

“There continues to be uncertainty resulting from COVID-19, which could impact on consumer behaviour in our core markets as well as participants within the supply chain,” Mr Nathan said.

“We are starting to see the ­effects of COVID-19 disrupting our larger corporate daigou reseller channel in Australia, in particular due to the extension of the stage-four lockdown in Victoria restricting their staffing and operations and the temporary closure of smaller market operators.

“Retail daigou sales continue to be soft due to the significantly fewer tourists and Chinese students who help to activate the channel.”

A2 Milk has reiterated that it expects its earnings margin to be 30-31 per cent this financial year, but with a few caveats.

Unable to estimate

The company said pantry stocking among Chinese parents that fuelled a doubling of infant formula sales to China last financial year was beginning to unwind, the full extent of which A2 is not able to estimate at this stage.

The company is also playing up its New Zealand origins and the fact that its popular Platinum brand of infant formula is sourced and produced across the Tasman as tensions continue to rise between Australia and China.

Chinese authorities have targeted a range of Australian soft commodities, from barley and beef to wine, following outrage over Canberra’s push for an inquiry into the origins of the COVID-19 outbreak, as well as foreign interference legislation and proposed foreign relations bills.

China is particularly lucrative to A2 Milk, representing almost half A2’s infant nutrition sales, which increased 33.8 per cent to $1.42bn in the year to June 30.

A2 Milk CEO Geoff Babbage called on the Morrison government to take on a “different approach” to China, which remains Australia’s biggest trading partner, with two-way trade worth $235bn, or 26 per cent of its total trade with the world.

“The political tensions between Australia and China are regrettable and, in our view, there needs to be a different approach,” Mr Babbage said.