Geopolitical risk prompts Bubs production shift to China

As China closes the door to more Australian products, goat milk formula maker Bubs Australia (ASX:BUB) is doing its best to solidify the trade relationship by moving production in-country.

Chinese joint venture partner Beingmate will help the ASX company secure a coveted State Administration for Market Regulation (SAMR) brand slot to make Bubs-branded infant formula in Beihai, China.

“Given the current geo-political landscape and regulatory risks, this breakthrough localisation strategy… mitigates key risks,” said founder and CEO Kirsty Carr.

“This will ultimately provide Bubs with a faster route-to-market and full access into China’s [30,000 Beingmate] Mother and Baby stores.”

China has sharply restricted trade with Australia this year, moves that are widely suspected as retaliation for the federal government’s vocal backing of an international inquiry into the origins of the COVID-19 pandemic and for its rejection of Huawei participating in building a new 5G network.

To date, China has blacklisted meat imports from four Australian abattoirs on technicalities around labelling, put an 80 per cent tariff for five years on barley on anti-dumping grounds, and most recently launched an investigation into whether locally made wine has been dumped in the Chinese market with a likely 80 per cent tariff to come next year.

SAMR registration

Bubs says it will supply the milk from Australia and retain ownership of its in-house formulations.

The SAMR registration is difficult to get and companies fight for a limited number of slots available outside China.

Since April 2019, 92 product applications have been successful in obtaining SAMR registration.

Of these, 77 are manufactured in China. Of the 15 products that are manufactured outside of China, nine are Chinese owned brands manufactured in France.

The only international brand to achieve certification during this period was Wyeth for six products manufactured in Singapore.

Bubs says it will continue trying to get SAMR registration for premium milk with labels in English made at its Tasmanian site, aimed at tier-one cities in China, and the Beingmate-made formula will be aimed at “lower tier cities”.

Beingmate was the first infant formula company to obtain certification when China’s new registration system was established and owns five s Certification Accreditation Administration of the People’s Republic of China (CNCA) certified manufacturing facilities.

Bubs Australia (ASX:BUB) share price chart

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