Bellamy’s owner wins China approval

China Mengniu Dairy Company has trumpeted the big win for its Bellamy’s business.

China Mengniu Dairy Company has trumpeted the big win for its Bellamy’s business. Picture: PETER HEMPHILL

The China Inc. owner of Australian infant milk formula maker Bellamy’s has finally won approval to sell its Chinese-label tins in China, a prize long denied Bellamy’s shareholders when it was listed, after piggy-backing off a Chinese licence held by a New Zealand dairy manufacturer.

In an update for its interim results provided to its own shareholders, China Mengniu Dairy Company trumpeted the big win for its Bellamy’s business, which it said had not only obtained the registration approval of its Chinese-labelled infant milk formula but also launched Bellamy’s Chinese-labelled organic baby rice. The access to Chinese labels helped boost Bellamy’s growth and profit margins in the first half of 2020.

Mengniu effectively bypassed its Australian manufacturing facilities to use a Chinese-label licence held by its majority-controlled fellow Chinese dairy company Yashili, which has operations in New Zealand. It means Bellamy’s products that could have been made in Australia are being made in New Zealand under the Bellamy’s name and then sold into the lucrative Chinese market, which is hungry for Australian food products such as infant milk formula, vitamins and beauty products.

For about two years before it was snapped up by Mengniu the Bellamy’s company and its shareholders were not given a registration for its Victorian manufacturing plant to sell Chinese-labelled tins of infant milk formula in China.

Mengniu is listed on the Hong Kong stock exchange and is deeply enmeshed in China’s intricate web of government and corporate players, where often an arm of the government is a major shareholder in a public company. Mengniu’s second-biggest shareholder is the Chinese state-owned Cofco agricultural conglomerate, which has a stake of just under 20 per cent.

In December Mengniu wrapped up a $1.5bn takeover of Bellamy’s, which needed approval by the Foreign Investment Review Board, bringing to an end six years of trading on the ASX.

A condition of the approval by Treasurer Josh Frydenberg was the maintenance of the Bellamy’s headquarters in Australia for at least 10 years and an investment of about $12m in establishing or improving infant milk formula processing facilities in Victoria.

However, there was no condition that Bellamy’s products only be manufactured in Australia, with some of the production for Chinese labels shifted to New Zealand. Bellamy’s products are famous for their Tasmanian heritage.

“The first Chinese-labelled Bellamy’s Kieevagour organic infant milk formula series has also been launched through offline channels in China in late August, thereby Bellamy’s will accelerate the expansion of key offline channels of the Chinese-labelled milk formula riding on the brand awareness and reputation accumulated over the years through online channels to expand brand awareness and offline distribution networks in first to third-tier cities,” Mengniu told its shareholders.

A spokesman for Bellamy’s said the company was still awaiting registration for its Victorian facility from Chinese regulators.

Amid rising tensions between China and Australia, earlier this year Mr Frydenberg blocked a deal for Mengniu to buy the Lion Dairy & Drinks business for $600m.

Meanwhile, Bellamy’s looks to have strengthened under Mengniu’s ownership.

“In the first half of 2020, Mengniu carried out comprehensive integration in Bellamy’s in terms of finance, human resource management and corporate governance,’’ its interim report said.

“Bellamy’s, as a crucial member of Mengniu’s international business, adhered to the “Pursuing Organic, Naturally Organic” brand positioning strategy and continued to construct a matrix of quality organic products while expanding channels.”