Baby formula firm orders 135,000 cans after gaining registration for market

Like many infant formula exporters, the outlook darkened for Biopure Health after the Chinese Government introduced a raft of strict import requirements last year.

A fast-growing segment of the New Zealand dairy industry, and one in which exports to China almost doubled to $200 million between 2012 and 2013, was thrown into a state of flux when the new regulations came into force on May 1.

Brands and manufacturers alike suddenly had to go through a complicated registration process with the Chinese authorities.

Without approval, their products could not enter the world's second-biggest economy, where a string of domestic food safety scares - including the 2008 melamine scandal, which killed six babies and sickened thousands more - had turned imported formula into a kind of white gold.

Advertisement

"Everyone's fear in the infant formula space was that they couldn't get product into China," said Biopure managing director Simon Page. "There was so much uncertainty."

Auckland-based Biopure's uncertainty ended on February 13 when its Infapure brand finally gained clearance with China's Certification and Accreditation Administration (CNCA).

The company received its registration because its products are produced by a CNCA-approved contract manufacturer in New Zealand.

Other firms haven't been so fortunate.

New Zealand Infant Formula Exporters Association chairman Michael Barnett said many local brands had either failed or chosen not to stay in business since the new import requirements were introduced.

A major challenge has been gaining access to CNCA-approved contract manufacturers, who significantly reduced the number of brands they were producing following the rule change.

Barnett said a number of New Zealand-based infant formula factories were "Chinese-owned or Chinese influenced" and often only wanted to manufacture brands with which they had an existing relationship.

The number of formula cans exported from New Zealand to China halved last year, he adds.

Page, who runs the business with his partner Jane Li, saw the changes coming and sent a large consignment of formula to China before the new regulations came into force.

But the inability to get more product into the Chinese market after May 1 forced Biopure to put its expansion plans on hold.

Now the company, whose formula is sold through 25 New Zealand Milk Bar stores in 23 Chinese cities, is looking to ramp up growth.

Biopure has placed an order with its manufacturer for nine container loads of formula - 135,000 cans - which will be shipped to China in April.

"We're looking at 1000 New Zealand Milk Bar outlets by the end of 2017 and as dramatic as this sounds, that will barely touch the potential market for infant formula in China," Page said.

The stores are run by the company's partners in China, who put up the capital to open the outlets and then buy the Biopure product, which sells for roughly 350 RMB ($74) a can.

The company has established a head office in Chengdu, capital of Sichuan province.

Page says the food safety-conscious Chinese authorities like Biopure's unique distribution model, which gives the company control over the entire supply chain.

And Biopure has caught the attention of Fonterra, which is trying to break into the Chinese market with its own infant formula brand, Anmum.

The dairy giant's Anchor UHT milk is sold through the Milk Bar stores.

"We met [former] Fonterra China president Kelvin Wickham in Shanghai in June last year to discuss the model and from the beginning he floated co-operation as opposed to just arms-length supply," Page said.

Things might be looking up for Biopure, but China remains an extremely challenging market.

There has been speculation that the Chinese Government is trying to consolidate its infant formula industry - partly through favouring large-scale domestic producers - and reduce the number of brands on sale.

However, Page is bullish about Biopure's prospects for growth in an infant formula market where retail sales are predicted to reach US$25 billion ($33 billion) by 2017.

"The trend for foreign-made infant formula isn't going away - that's the future."