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Food & Agriculture
To this day, I remember the stress of running out of infant formula one day on holiday when my daughter was about 8-months-old. While not solely reliant on infant formula for her nutritional needs, she did require a specific type of formula at the time which was hard to access.
With a formula shortage continuing to grip the US, many parents have been struggling to access the formula they rely on to feed their babies with reports by some parents of the situation being a “nightmare”.
The US produces almost all of its own baby formula for domestic consumption but is dominated by some big players. The current crisis kicked off in February when one of those big players, Abbott Laboratories, closed a manufacturing plant after the US FDA began looking into bacterial infections in infants who had consumed the formula.
Pandemic supply chain shortages had further exacerbated the infant formula shortage in the US. While Abbott has reached an agreement with the FDA to reopen the facility by the beginning of June, it has sparked discussion about whether the crisis could open the market to Australian infant formula producers.
Infant formula is different to toddler formula or other specialty kids formulas on the market. Unfortunately, it’s not just a case of other countries stepping in and helping to solve the US shortage. Strict regulations means it’s difficult to get approval to sell infant formula in the US and our big players don’t have it.
The US Federal Food, Drug, and Cosmetic Act (FFDCA) defines infant formula as: “food which purports to be or is represented for special dietary use solely as a food for infants by reason of its simulation of human milk or its suitability as a complete or partial substitute for human milk”.
Furthermore, about half of all babies born in the US qualify for the Special Supplemental Nutritional Program for Women, Infants and Children (WIC), a US Department of Agriculture program for low-income pregnant women and low-income mothers with infants or young children.
The WIC program and infant formula market in general has come under scrutiny in the latest crisis with concerns about an oligopoly with strict guidelines that say what brand of formula can be purchased. Concerns about an oligopoly in the US infant formula market stretch all the way back to the 1990s.
The administration also signed off on legislation aimed at improving access to baby formula. The Access to Baby Formula Act of 2022 ensures families during the crisis can use benefits from the WIC program to buy formula products outside of what is normally designated.
It was 1865 when German chemist Justus von Liebig developed, patented and marketed an infant food, first in liquid form but moving to a powdered form as it prolonged preservation. The formula consisted of cow’s milk, wheat and malt flour and potassium bicarbonate.
Before formula, women unable to breastfeed often used the services of a wet nurse — another woman who could breastfeed — to ensure their baby was adequately fed.
Today, modern formula has come a long way with cow’s or goat milk or even vegan alternatives. It is also supplemented with additives necessary for healthy growing babies including protein, fat, Vitamins A, C, D, E and K, carbohydrates and nucleotides.
Infant Nutrition Council of Australia and New Zealand CEO Jan Carey told Stockhead the US shortfall was highly unfortunate and shows fault in their system.
“It shows a great weakness in the US regulatory system in that it’s very protectionist and only allows their infant formula to be sold in the country,” she said.
“By having a protectionist position it puts their supply change at risk and consequently the health and safety of infants that are relying on formula to supply their nutritional needs.
Carey said Australia and New Zealand is well recognised for its quality food standards, particularly milk products, and is willing to help out the US with its formula shortage.
The council represents more than 95% of the volume of infant formula that is exported from Australia and New Zealand. She said the biggest market is China but also other ASEAN region including Vietnam and South Korea.
“We want to see the US infant formula markets sustainable and they have expressed opening up their markets but at this stage only until November,” she said.
“We want to see a long-term change in their infant formula market access policy that aligns with free-trade.
“We are looking at other markets, including the US and Canada, but up until now it has just been too hard for companies to get into the US market.”
The big providers of infant formula in Australia include Nestle Australia, a foreign-owned publicly unlisted company. Danone SA is a multinational food products corporation based in Paris but founded in Spain. It’s listed on Euronext Paris.
Another major player Bellamy’s Australia delisted from the ASX in 2019 after it was taken over by China Mengniu Dairy in a $1.5 billion deal.
Big players in Australia listed on the ASX are a2Milk Co (ASX:A2M) and Bubs Australia (ASX:BUB).
As Stockhead’s go-to China guy Christian Edwards pointed out, a2Milk was the symbol of “our once monster-truck trade with China”.
The company stepped in to fill a void in the niche market in China, which had been left tarnished by local scandals. In 2008 infant formula was found to be adulterated with the chemical melamine, which resulted in kidney stones and damage in babies.
A spokesman for a2Milk told Stockhead the company was aware of the situation in the US.
He said the company has full registration for milk products which are sold in supermarkets in the US and is watching closely the issue with infant formula.
The company saw its share price rally 9.83% last week to $4.47 as analysts after some analysts suggested there was potential for a2 milk to develop a strategy to sell infant formula in the US.
Bubs Australia (ASX:BUB) is the other big player on the domestic market. It sells goat and organic grass fed cow infant formula. The company already has a growing distribution network in the US for its toddler range across existing and new retailers and e-commerce sites according to its latest business update presentation for Citi on the ASX.
According to the presentation “Aussie Bubs is providing reassurance as a clean label, nutritional, safe, secure formulation from Australia.”
“We will not be commenting on how much uplift we could get if we were able to sell infant formula in the US, only that we have had an uptick in enquiries regarding the toddler formula which is already being sold in the US,” a Bubs spokesperson also told Stockhead.
“We are pursuing avenues to assist the US where possible an announcement will be made to the market if and when we have something to say.”
The Bubs share price has also rallied in the past five days, up 12.50% to 45 cents.
While there are a number of other private companies specialising in infant formula in Australia, including Little Oak Company, there are also some others listed on the ASX, with feeding babies becoming big business. Among players in the sector are:
Australian Dairy Nutritionals (ASX:AHF), which this week announced it reached a key milestone in its infant formula project with successful production of milk powder at its new infant formula plant. First production of the group’s A2 Ocean Dairies infant formula is scheduled for June 2022.
Nuchev (ASX:NUC) like Bubs also formulates formula using goat milk. The company’s website says it recognises breast milk is the best choice for babies. However, it says it understands that for women who cannot breastfeed or choose to move on to formula, it’s important they have access to a high quality formula that meets their nutritional needs.
Synlait Milk (ASX:SM1) is a dairy processor and sister company of a2Milk. Synlait serves A2 Milk among other companies with A2 owning just under 20% of the company.
Fonterra (ASX:FSF) is a New Zealand based company and a co-operative owned by around 10,500 New Zealand farmers. While only a small cap on the ASX, it is the largest dairy company and exporter in the world.
Jatcorp (ASX:JAT) (formerly Jatenergy) has had various endeavours in its listed life, from energy projects to plant based food with infant formula one of its more successful outings.
Happy Valley Nutrition (ASX:AVN) is New Zealand based and produces and sells infant and other nutritional products.
While not producing infant formula directly, HRL Holdings (ASX:HRL) provides laboratory services which tests substances, including infant formula for contamination.
Graincorp (ASX:GNC) provides specialised INFALAC oil blends used in infant formula to achieve the desired nutritional benefits.
Bioxyne (ASX:BXN) is a health and wellness company, with its products focused on gastrointestinal and immune health. Bioxyne’s proTract formula is designed to be mixed in with infant formula to treat the symptoms of eczema.
Clover Corp (ASX:CLV) according to its website produces products designed to deliver science-based benefits to the global infant and medical foods market. Clover provides supplements for infant formula manufacturers.
Infant formula stocks missing from our list? Let me know at [email protected]
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