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Dairy traders gear up for new China rules

Monday 28 Apr 2014 7:34p.m.

Dairy traders gear up for new China rules

By Suze Metherell

New Zealand's listed dairy companies, Synlait Milk, A2 Milk Co and Fonterra Shareholders' Fund, probably won't face much disruption from tighter rules on infant formula in China, the nation's biggest market for milk products, a major investor says.

A2, whose Platinum infant formula is manufactured at Synlait's Canterbury plant, led the three dairy companies lower on the NZX today, after saying it is monitoring and responding to China's new requirements, which include demonstrating a close association between brand owner and manufacturer, and a new form of registration from May 1.

China telegraphed its new requirements to the Government last week by releasing an audit of a sample of New Zealand manufacturers conducted in March.

That left officials and companies scrambling to interpret the changes in time for the registration deadline this week.

The Government says manufacturers who control 90 percent of the nation's infant formula exports are working through the registration process but the remaining 10 percent face a tougher job to comply.

Shares in A2 Milk, which sells infant formula in China, Australia and New Zealand, fell 9.5 percent to 76 cents. Fonterra units, which give investors access to Fonterra's dividend stream, slipped 0.7 percent to $6.15. Synlait, which counts China's Bright Dairy Food as a cornerstone shareholder, fell 0.8 percent to $3.61.

"The issues for those companies is more can they grow their businesses and at what prices for their product as opposed to this regulation," said Matthew Goodson, of Salt Funds Management.

"There is a very small chance it could be a major negative but I don't think that's really seen by the market as likely."

Last year, infant formula made up about 4 percent of the nation's $5 billion dairy exports to China, whose government is trying to bolster food safety and restore confidence in baby foods made of milk powder after melamine-tainted formula caused the deaths of six children and sickened 300,000 others in 2008.

The scandal sparked a surge in demand for imported product in the world's most-populous country, where demand for dairy products is keeping pace with an emerging middle class. China already tightened rules for its own manufacturers last year.

Primary Industries Minister Nathan Guy and Food Safety Minister Nikki Kaye said last week that tighter rules for imported infant formula would have "a very significant impact" on brand owners unable to demonstrate a close association with a manufacturer.

"The people it will have an effect on are those that don't really have any food production business, they just buy a whole load of infant milk formula that's been processed by somebody and then they whack a pretty label on it and sell it," Mr Goodson said.

NZN

 
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