Relief for A2 Milk as Chinese regulatory path untangles

Baby formula company A2 Milk has taken a crucial step forward in making sure it can keep making its infant formula in China, as food safety rules in the lucrative market are overhauled.

A2 shares jumped on Monday after New Zealand-based Synlait Milk, which makes the Chinese-label infant formula for A2, said it had received the necessary regulatory approval to keep making the product, while it works through China’s new regulation process.

The product registration for the $4.1 billion dairy giant’s China-label infant formula, produced by New Zealand-based Synlait Milk, was due to expire in late September, but has now been renewed by China’s food regulatory body - the State Administration for Market Regulation (SAMR) - until February 21 next year.

A2 Milk has received approval for its Chinese-label baby formula supplier to continue making product until late February 2023.

After that date, infant formula sold in China will have to undergo another regulatory process to meet the Asian country’s more stringent food safety rules.

Chinese parents represent a lucrative key market for the dual-listed company: in the 2022 financial year, revenue from its Asia market rose by 24.5 per cent.

A2 Milk chief David Bortolussi said he was pleased that the Chinese-label product’s registration had been renewed for five more months and would work with Synlait and China’s regulatory body to make formula in line with China’s new standards.

“We remained focused on the China market and are looking forward to the opportunity to make our newly formulated infant milk product available to parents and infants in China,” Bortolussi said.

A2 Milk is permitted to sell baby formula manufactured before February 21 after that date.

Investors in the dairy giant cheered the news, with its share price finishing Monday’s trading session up 2.5 per cent to $5.70.

Bortolussi previously told The Herald and The Age the company was building back its Chinese daigou community after the pandemic’s closed borders inflicted damage on the reseller channel.

“The daigou channel, through one-to-one word of mouth recommendation, is a really powerful form of new user recruitment and communicating our brand messaging through the market more generally. So, it’s a really important and effective channel we want to support,” Bortolussi said last month.

A2 Milk has been pipped by its smaller competitor Bubs Australia and non-listed company Bellamy’s Organic to supply baby formula to the US amid an acute infant formula crisis.

It has had its own application put on ice, and Bortolussi said selling to the US market would have been immaterial to its 2023 financial results anyway.

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