Home杭州楼凤 › Organic produce isn’t the only ingredient in Bellamy’s appeal, says investor

Organic produce isn’t the only ingredient in Bellamy’s appeal, says investor

Bellamy’s sold out of infant formula last month, sparking panic among parents. Photo: Janie BarrettSourcing enough organic milk powder isn’t Bellamy’s only challenge to make sure it doesn’t run out of infant formula again. Analysts say the Tasmanian company must correctly forecast demand for its product, with lead times for ingredient orders stretching up to nine months.
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Bellamy’s shares have surged more than sixfold this year to $12.43. Such is the demand for its infant formula that it sold out – along with a2 Platinum and Karicare’s products – across n supermarkets last month, following China’s biggest internet sale, Singles Day.

Morgans analyst Belinda Moore said Bellamy’s had moved to mitigate future shortages, signing a five-year manufacturing deal with the world’s biggest dairy exporter, Fonterra of New Zealand.

“The new contract with Fonterra will significantly increase Bellamy’s volumes,” Ms Moore said. “In our view, this new arrangement is a sign of strong trading, the company’s future prospects and the fact that it is sourcing additional organic ingredients.”

Bellamy’s has confirmed that it sources some ingredients, which it will deliver to Fonterra for processing, from overseas. But it declined to reveal a complete breakdown, saying it was part of their intellectual property.

n Organics chief executive Paul Stadhams said demand for organic products in outstripped supply on average by about 40 per cent, and for some products the supply gap was a high as 70 per cent.

Andrew Mitchell, the founder of Ophir Asset Management and a Bellamy’s investor, said he understood the company sourced most of its milk powder from Europe, which had a bigger organic market than .

Therefore, he said sourcing organic produce shouldn’t be a problem for Bellamy’s.

“Their challenge is in the forecasting so they get the right amount,” Mr Mitchell said.

“Obviously, that’s been the issue because of the unprecedented demand.

“In Europe, there is lots of supply out there. But it’s about getting the right size of the order because you have to order well in advance, about six to nine months in advance.”

Mr Mitchell, whose boutique firm has delivered investors a 305 per cent return since it was launched in August 2012, has sent staff to China to better understand the infant formula market.

He found that the key ingredient in Bellamy’s appeal in China wasn’t its organic label.

“The Chinese don’t care as much about organic as the n consumer does,” Mr Mitchell said.

“They just care about what the n consumer is doing. It’s not like ‘it’s organic, I’m going to buy it’. They’re buying it because the ns are buying it and it’s organic.”

Still, Mr Mitchell was concerned the soaring demand for infant formula in China could create a “third tier” of opportunistic infant formula manufacturers, which could compromise ‘s reputation.

“If there is a health scandal here, the n brand in this burgeoning export market into China can be destroyed overnight.

“With infant formula and these types of things, depending on how bad it is, might never recover. We want to make sure the regulators are completely over this and slow down new entrants at least to make sure that the quality of their product is first rate.”

Jan Carey, the chief executive of the Infant Nutrition Council, which represents infant formula manufacturers in and New Zealand, said the quality of locally produced products must be assured before it lands in China.

Beijing authorities clamped down on opportunistic companies last year when it slashed the number of imported brands from more than 800 to about 94. Infant formula brands had flooded the Chinese market following the country’s melamine infant formula scandal in 2008, which killed six babies and put another 54,000 in hospital.

“Their standards are pretty tough because food safety is very important,” Ms Carey said.

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