China Opens Door to New Zealand's a2 Milk Company

WELLINGTON, New Zealand--New Zealand dairy firms are gradually being allowed to sell baby formula in China again following a clampdown that saw hundreds of brands shut out of the market earlier this year.

a2 Milk Company Ltd., which specializes in products for people with difficulties digesting milk, was the latest to win clearance from Beijing, the company said Tuesday.

New Zealand's biggest dairy producer, Fonterra Co-Operative Group, won approval to return in May, and another local company, New Zealand New Milk Ltd., was let back in earlier this month.

Among the other suppliers to have been approved to sell baby formula in China again are Nutricia Ltd., Westland Co-Operative Dairy Company Ltd., Canpac International Ltd., Gardians Ltd., Sutton Group Ltd., Dairy Goat Co-Operative (N.Z.) Ltd. and GMP Dairy Ltd.

Under new rules imposed May 1, offshore infant-formula makers must register with Chinese regulators before being able to export their products to the country.

The rules require any company exporting baby formula to have control over the entire manufacturing process--meaning if they outsource production they must maintain strong oversight.

The new regulations came after a spate of food-safety scandals that caused alarm among Chinese authorities.

Last August, Fonterra believed it may have discovered a potentially deadly bacterium in some of its products, setting off a recall across Asia that ultimately proved unnecessary, yet harmed New Zealand's reputation as a safe supplier of food.

Five years earlier, Chinese-made formula tainted with the industrial chemical melamine killed six infants and sickened 300,000. With demand for infant formula surging as the country's middle class grows, the call for tougher regulation gathered pace.

a2 Milk's shares got a strong lift from news of its approval, gaining 6.6% on the day, while the benchmark NZX-50 gained 0.1%.

A spokesman said the company had enough baby-formula stocks in China to meet demand until its processing-and manufacturing-partner, Synlait Milk, also gets the green light from China.

James Bascand, an analyst at New Zealand investment firm Forsyth Barr, said a2 Milk was one of fewer than 100 brands so far to win regulatory approval from Beijing, compared with as many as 800 who were exporting to China prior to the new regulation.

Dairy represents around a third of New Zealand's exports. The country has benefited from strong dairy prices in recent years as demand grows in China for milk products including cheese, butter and yoghurt.

Dairy exports to China, its biggest trading partner, were last year valued at 5 billion New Zealand dollars (US$4.33 billion), of which NZ$200 million was infant formula.

Write to Rebecca Howard at [e-mail]

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