China’s insatiable appetite for vitamins and supplements is pumping billions of dollars into the Australian economy, with thousands of online shoppers snapping up products from leading Australian and New Zealand brands Blackmores, Swisse Wellness, Vitaco and Bellamy’s.
Baby formula exports have become a lucrative business, thanks to the end of China’s one child policy and Australia’s reputation as a country with clean industry and strong food standards. Australian vitamin and supplement producers are well-placed to meet Chinese demand by increasing their exports to China.
Off the back of impressive revenue figures last year, Blackmores stock hit a record-breaking price of AU$200 in October 2015. The stock price of Tasmanian competitor Bellamy’s reached an all-time high in late December 2015. Meanwhile, Swisse Wellness is currently testing the market for a potential AU$1 billion sale, and Vitaco is preparing to list on the stock exchange in an AU$250 million float.
Factors Contributing To Demand
Vitamin and supplement sales in China almost doubled in the past five years, according to market researcher Euromonitor International. Key structural drivers behind this growth include rising incomes and increasing consumption of health products, helped along by online distribution channels providing Chinese consumers with easy access to Australian producers.
Chinese consumers have recently been unnerved by local food contamination scandals involving frozen berries, baby formula and milk powder. Particularly memorable is the 2008 melamine milk scandal, where six babies died and 300,000 others fell ill after the industrial chemical melamine was added to baby formula. Food safety scares have led Chinese consumers to seek trustworthy overseas suppliers.
In October last year, China announced the end of its strict and controversial one child policy. All Chinese couples are now allowed to have two children. This policy shift is intended to balance population development and address the challenge of an ageing population, by encouraging families to add another child to their brood.
These factors combine to place Australian vitamin and supplement producers in a unique position to service increasing Chinese demand, with “Brand Australia” having a strong reputation for producing “clean and green” food that meets rigorous regulatory standards.
Significant Trade Opportunity
Blackmores is one example of an Australian vitamin and supplement producer riding the wave of demand. The company’s sales in China for the year ended 30 June 2015 rose from AU$2 million to more than AU$70 million. Blackmores’ China business took off after it set up a wholly owned foreign enterprise that allowed it to take advantage of the Free Trade Zone in Shanghai to sell its products in the local online market.
Blackmores CEO Christine Holgate says the majority of the company’s sales to China were sold to Chinese consumers in Australia or through the Free Trade Zone. Products sold through e-commerce platforms do not attract the current 35 per cent import duty.
Holgate says the new Free Trade Zones and the falling Australian dollar have both contributed to the increase in demand for Australian products, making them accessible and affordable in addition to their existing reputation for being clean, green, and high quality.
Baby Formula Running Off Shelves
News reports have stated that Chinese university students based in Australia are buying vitamins and supplements in bulk from discount pharmacies, and then shipping them back to China via eBay at prices two to four times the Australian retail price. Fund Manager Roger Montgomery told ABC reporter Tim Palmer that the majority of Blackmores’ increase in sales to China went through this supply chain, rather than the Free Trade Zone.
Mr Montgomery also claimed that tourists from China are buying up large volumes of vitamins and supplements when holidaying in Sydney and Melbourne.
Supermarkets have been struggling to keep baby formula on shelves, with the Woolworths head office issuing an eight-tin limit and Coles imposing a four-tin limit. It is not difficult to understand the incentive to on-sell: one tin of Bellamy’s organic baby formula, priced around AU$25 on home soil, can sell for AU$84 in Shanghai.
Blackmores recently entered into a joint venture with Australian dairy producer Bega Cheese to address Asian demand for baby formula and other powdered dairy products. The company’s Newborn Formula, Follow-On Formula and Toddler Milk Drink launched in January this year. Blackmores has also entered into a similar joint venture with Kalbe, south-east Asia’s largest health group, to enter the growing Indonesian market.
The company’s sales figures should be receive a boost from the Chinese government’s recent announcement of a crackdown on food safety laws. Beijing authorities will limit manufacturers to selling only three baby formula brands, aiming to tighten supply chains and improve food safety. International producers are unlikely to be affected as they rarely export more than three brands of formula to China.
We will continue to monitor the rate of vitamin and supplement sales and potential legislative and regulatory changes which could affect Australian producers.