Can a new generation of ASX food stocks still find success in China?

There might still be a market for Australian food stocks in China, as long as they don’t place too heavy a reliance on China.

The decade prior to COVID-19 saw several food and dairy companies make money from the promise of China and its growing middle class of consumers, with examples include dairy companies A2 Milk (ASX:A2M) and Bellamys (ASX:BAL).

But companies such as A2 have struggled in light of diplomatic tensions between China and Australia as well as logistical issues and a drying up of the daigou trade.

This has seen some companies appear to hedge their bets, particularly Bubs (ASX:BUB) which has attempting to enter several ASEAN markets as well as the USA.

But that hasn’t stopped other companies dipping their toes in the Chinese market.

“Businesses need China”

One such company is Forbidden Foods (ASX:FFF) which sells multiple organic food ranges and exports to multiple international markets.

On Friday it signed a cross-border e-commerce distribution agreement with Hong Kong-based Winhealth Pharma to distribute its FUNCH baby foods in JD and Alibaba-owned Kaola.

The company is targeting $1.055 million of sales in the first year and $2.16 million in the second.

Speaking with Stockhead CEO and founder Marcus Brown said he was approaching China in conjunction with other Asian countries so it wasn’t a case of putting all the eggs in one basket but asserted China couldn’t be ignored.

“I think for a business like ours, people have to remember that Bubs, Bellamys, A2 Milk and Blackmores’, what they were basically created [from was] off the back of these Chinese growth,” he said.

“China is still an important market – we know there might be be some short-term challenges but we haven’t seen any challenges in cross border trade which has been quite strong, ecommerce trade is quite strong.”

“And we see that businesses need to be in China, and work with China to enter such a big market.”

“Over the medium and long term we still see China still being very much a strong trading economy and I think businesses still need to divert resources and work with good partners with China to create value for business.”

Other ASX food stocks which might eventually reap a windfall from China

Freedom Foods Group (ASX:FNP) is a company which already has Chinese connections but hasn’t seen the windfall of A2 and Bellamys.

It struggled in recent months after an accounting scandal and it has been weighed down by investor sentiment towards China-focused ASX food stocks.

Another candidate for this next generation of ASX food stocks is New Zealand based Happy Valley Nutrition (ASX:HVM).

Although this company is still in the planning stages of building its plant, it noted in its prospectus when the times comes China would be a critical market being the world’s largest dairy importer.

Victorian based Australian Dairy Group (ASX:AHF) is also an aspirant to serve Asian markets but it is at a later stage of construction for its plant, hoping for first production by this year’s end and it already sells some dairy products in Australia under the Camperdown Dairy brand.

It also recent appointed a new director, Jason Dong, who the company said would be a significant contributor as it sought to establish relationships in key Asian markets including China.