China infant formula uncertainty claims another victim: Murray Goulburn and Mead Johnson deal scrapped

By Gary Scattergood contact

- Last updated on GMT

Major infant formula suppliers and manufacturers are blaming sluggish sales on new rules in China. ©iStock
Major infant formula suppliers and manufacturers are blaming sluggish sales on new rules in China. ©iStock
Australian dairy co-operative Murray Goulburn and Mead Johnson Nutrition have scrapped an agreement signed in March to supply infant formula to Asia.

Murray Goulburn said it remained committed to a “B2B nutritionals strategy” ​and that it would continue to explore ways to work together with Mead Johnson, which had previously committed to buying large volumes of nutritional powders from the firm.

This latest development follows a turbulent time for dairy and infant nutrition companies, many of which had previously enjoyed a rapid sales boom in Asia, driven by soaring demand in China.

But new regulations from the Chinese government are tightening the market, along with the number of players and brands allowed on the shelves.

Both domestic and foreign companies will soon be restricted to three product lines with a maximum of three formulas per line.

Products are also now subject to formula registration by Decemer 2017, whether produced in China or imported into the country, and recipes must be pre-registered with and approved by the CFDA.

Meanwhile labelling requirements have been tightened to ensure the country of origin is stated and restricting the use of general terms such as ‘imported milk source’.

While many predict this will benefit international firms in the longer term, by curtailing local outfits which flood the market with multiple brands, it has caused a swell in supply with Chinese manufacturers drastically slashing prices to shed stock before the new rules are enforced.

In recent months’ major manufacturers such as Nestle, Danone and Biostime have recorded at best sluggish sales, and at worse significant slumps, much of which has been attributed to the Chinese situation.

Speaking of the partnership abandonment, Murray Goulburn Interim CEO David Mallinson said the regulatory changes meant the partnership as agreed in March was no longer viable.

He added: “Mead Johnson views Murray Goulburn as a valued partner and we continue to have an excellent relationship with them.

“As part of this relationship, we intend to continue to explore new ways to work together. [We] remain committed to developing a leading B2B nutritionals business for all export markets and we will continue to assess the best possible way to invest for future growth in this business.”

Liquidating inventory

Meanwhile, just last week Australian organic formula maker Bellamy said the new China rules were hitting revenues. with its shares dropping by more than 40%.

"As with the broader infant formula market, Bellamy's has experienced restructuring of the sales channels into China since the regulatory announcements. Brands that are unlikely to gain registration are liquidating inventory at discounted prices, which impacts both imported brands such as Bellamy's and the market overall,"​ it told investors

The company said it expects revenue to fall to A$240m ($178m) in 2017.

And in October we also reported how a joint venture between Blackmores and Bega Cheese​ to supply infant formula across APAC - and in particular China - had missed its sales targets.

Bega shareholders were told the company planned a provision of $5m to $7m on inventory, representing the company’s share of the partnership.

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