Australian "daigou" retailer to sell own-brand A2 milk powder, shares jump

[SYDNEY] China-focused retailer AuMake International Ltd said on Tuesday it will start producing own-brand A2 milk powder, rivalling the wildly successful product that has made New Zealand's a2 Milk Co Ltd a market darling.

Although small-scale, the move by the "daigou" seller, via a partnership with a Chinese-backed New Zealand dairy supplier, will give it exposure to soaring Chinese demand for Australasian dairy products, pushing its shares to a five-month high.

It also underscores increased competition for a2 Milk itself in a market that has delivered it fat margins and big profits.

"We believe there's room in the market for more brands," AuMake Executive Chairman Keong Chan told Reuters by phone.

"The market's so large - looking from China, a2 is not particularly well known ... we think there is still a lot of the market that's being unmet."

Regular milk contains both A1 and A2 proteins but some cows naturally produce milk without the A1 protein. Proponents of A2-only milk say the A1 protein causes indigestion for many people, while critics say more research is needed.

AuMake's supply deal with New Zealand's Pure Nutrition Ltd, majority owned by Ausnutria Dairy Corp Ltd, is part of a broader trend. Nestle SA, the world's biggest infant formula maker launched an A2 product in March.

"There are more newbies ... but there is no evidence that any of them are taking market share from a2," said Oyvinn Rimer, director at major a2 Milk shareholder Harbour Asset Management.

"In fact it's been the other way around - the total market will grow when more people talk about it and a2 milk is the logical beneficiary of more consumer awareness."

a2 Milk Company told Reuters in an emailed statement that "there is a high degree of difficulty" in successfully launching a new brand.

AuMake, which listed last October, operates a retail network aimed at "daigou" or shoppers who purchase products for customers in mainland China, in a bid to avoid high import duties.

Financial terms of the AuMake deal were not disclosed. Pure Nutrition is contracted to deliver a million tins of A1 milk powder and 600,000 tins of A2 powder by April or May next year.

AuMake shares jumped 14 per cent to A$0.30 (S$0.30), their highest since March, while the broader market fell slightly. A2 Milk shares edged lower in New Zealand.

REUTERS