A2 Corporation (A2C) – the manufacturer of a2 brand milk products – looks set to enter the Chinese market after agreeing a distribution deal with an in-market state-owned firm.
The Australia-based dairy processor has appointed China State Farm Holding Shanghai Company (CSF) as the exclusive distributor of its a2 brand milk powders and infant formula products in the country.
The global infant formula market is valued at more than $17bn, of which China accounts for around $6bn. According to A2C, this figure is growing at more than 12% per year.
According to A2C managing director, Geoffrey Babidge, the deal leaves the firm well positioned to enter the Chinese market.
“Today represents a further significant development in the Company’s evolution. Having now secured both supply and distribution for a2 brand infant formula with highly credible and experienced market participants, A2C is not well positioned to enter the Chinese market which will support the Company’s strong future earnings growth profile,” said Babidge.
New Zealand sourced
A2C will derive its revenue from the sale of a2 brand infant formula to CSF, and expects revenue from China to grow to approximately $50m within four years.
Production of a2 brand infant formula will begin in December 2012, with the first sales to China scheduled for June 2013.
The milk powder and infant formula products will be sourced and packaged in a shelf-ready form in New Zealand by Synlait Milk Limited through a pre-agreed manufacturing deal.
In April 2012, A2C announced a strategic agreement with Synlait to manufacture a2 brand nutritional powders, including milk powders and infant formula destined for the Chinese market, at its facility in Dunsandel, New Zealand.
The deal is for three consecutive three-year terms with renewal conditions on the achievement of agreed performance targets.
A2C has committed $5m of funding for the 2013/2014 period for administration, marketing, and working capital to support the establishment of the business.
A Marketing Committee consisting of representatives from A2C and CSF will control marketing activities for the a2 brand infant formula range. A2C managing director, Geoffrey Babidge, will chair the committee.
Most cow milk contains two main types of beta-casein protein – A2 and A1. The A1 beta-casein protein has been linked with digestion and health issues. a2 brand milk comes from cows specially selected to produce just A2 beta-casein protein.