Australia’s Bellamy’s lesson

From the AFR:

This will not be a merry Christmas for the management and board of infant formula maker Bellamy’s Australia, led by chief executive Laura McBain.

The company’s request for an extension to the voluntary suspension of its shares until January 13 speaks to a company in deep trouble.

The only question now is how deep.

Bellamy’s didn’t give much away on Wednesday but it did say that it was negotiating “with key suppliers/manufactures in order to determine the impact of those negotiations on the company’s expected financial results.”

We know that sales in China have dropped sharply, something Bellamy’s has blamed on discounting from lesser known brands which are unlikely to get accreditation to import formula under new Chinese regulations, and so are dumping stock. The big Singles Day sales event in China in November was also below expectations for Bellamy’s.

…Bellamy’s investors have leant that the dragon doesn’t always spit fire in the right direction.

The lesson here is for all of Australia not Bellamy’s investors. It is this: we have no God given right to get rich from China. It only needs our dirt for now and less so into the future. There is no “dining boom” to speak of and  all any services boom (including tourism) is small and insufficient to overwhelm our own high-living habits:


The lesson is we will have to compete and need policies to match:

  • curtailing offshore borrowing;
  • lowering land prices;
  • linking wages to productivity;
  • increasing competition and innovation;
  • lowering the yield spread;
  • getting the dollar down.

Getting excited (and disappointed) about the odd dart throwing winner like Bellamy’s is exactly the wrong approach. It leads to an over-reliance on one market, soaring policy risk abroad and policy paralysis at home. We need deliberate and systemic reform to win business worldwide. We need a million Bellamy’s exporting to one hundred countries.


  1. Typical government BS of picking winners (China sales) instead of fostering an environment that is conducive to producing winners in any field of endeavour, however unplanned.

    • Surely this is more of a case of stock market investors trying to pick winners, and isn’t that kind of their function?

  2. This was most difficult article to focus on as I kept looking to the right and trying to workout which one is my type – the 23 or 29 year old.

      • neither but I can’t tell what my son and his friends are doing on internet. maybe I should configure the URL filter.

      • I used to see ads on MB re: Asian singles and I guarantee you this is not based on targeting or retargeting.

        I am being 100% serious – somehting broken with the MB ads. I emailed MB directly about this as I view MB at work and did not appreciate them allowing these ads through AdSense

      • I’ve got an ad offering to tell me James Packer’s secret for getting rich.

        Unfortunately for the advertiser I already know James Packer’s secret technique for getting rich – careful selection of parents.

      • Tassie TomMEMBER

        Now I’ve got an ad offering me 60,000 frequent flyer points if I join HBSC. I don’t even have a passport!

  3. Look at the volume increase after $7-8 last year when all the media hype really fired things up. Be a few sore retail heads at the moment.

  4. Never understood how endless riches were going to come from a market (i.e. Chinese babies) which peaked in size in 1970 and has been shrinking steadily ever since.

    • The number of babies in China is a little better in shear numbers at the moment from where it was ten years ago, but that is merely because there is a lot of 25 to 35 year women compared to ten years earlier (Cultural Revolution messed up the breeding pattern with the rustication of the young people). But in ten to fifteen years the numbers will be woeful as the fertility rate is still dropping. The population as a whole will peak within ten years.

      • The number of babies in China is a little better in shear numbers at the moment from where it was ten years ago

        Still nearly 40% fewer than at the end of the 60s

        The population as a whole will peak within ten years

        That’s a problem for the “dining boom” story as a whole, although the ageing of the population probably means demand for calories will peak before the population in shear numbers does, but betting the farm to enter a market that is already shrinking, such as baby formula to China seems especially crazy.

      • Robert

        Whilst the overall population stats may show a slowing or even a lessening, I would have thought that the target market in China for premium foods ie the middle classes, would still be growing?

        I also thought we have more of a problem in that we are very limited in how much we can supply (I’ve seen that even if firing on all cylinders Australia can feed a maximum of 60m people, that’s us and a couple of Chinese cities) rather than how much the Chinese will want.

      • @triage,

        There are about 1.6 million cows in Australia, producing apparently an average of 5000 litres per year, which is more than enough to satisfy the complete needs of all the babies in China, even if none were breastfed.

        Additionally, while the proportion of the Chinese population who are middle class may continue to grow for some time, I’m sceptical that it will outrun the shrinking of the population as a whole forever.

      • Thanks Robert

        But I think what powder we can produce in theory assumes no local consumption and that we don’t use the milk for anything but powder.

        I stress my knowledge amounts to a 10 minute google search but I came across this on Dairy Australia’s website:

        “In 2015/16 Australian exports of WMP [whole milk powder], in the form of both regular powder and infant formula exceeded domestic WMP production, and meant that Australia itself imported some 32,000 tonnes of infant formula, and 13,000 tonnes of WMP in 2015/16 to make up the shortfall.”

        So it appears that already we are having to import the stuff just to repackage it and export it to China as Australian product (???).

        edit: sorry forget the link

      • Triage

        Happy to stipulate that I was grossly over-simplifying.
        Reading your link highlights the complexity – it specifies that over 80% of Australian milk powder is exported because better prices are available O/S in high value uses, in turn creating the need to import milk powder, for lower end uses domestically (if I understand what it is saying correctly).

      • While bellamys is produced in Tasmania, a fair chunk of its input milk powder is sourced from Europe as the vast majority of dairys in Australia are not certified as organic.

        Have a look on the can. Made in Australia from Australian and imported ingredients.
        tl;dr it’s mostly (clever) marketing/positioning.

      • Thanks, that helps explain some their supply chain issues also.
        However, I wonder if part of their problem is they are sharing suppliers with competitors also selling into China, and I also wonder whether the Chinese consumer will one day figure out their marketing ruse and move on.

      • Yes, as I said we don’t have exclusivity to grown dairy cows (Europe and NZ do a very good clean and green product too… USA does bulk).

      • What Aussies don’t realise is there are other competitions to baby formulas. EU or Americas or NZ can make just as good products.

    • First off its not about absolute numbers but the increase in numbers of the affluent middle and upper classes. This segment is still growing as China urbanises. Plus it has just abolished the one child per family rule. Secondly, the change in regulations in 2018 mean that 2000+ suppliers of infant formula currently in the market are going to be whittled down to about 200. So those who survive the cut will see a big uplift in market share. Lastly, this is not a boom in infant formula – people are not stripping the shelves of NAN and S26 and sending it to China, nor do those brands feature highly online – its a boom in high end premium products. What Bellamy’s did wrong was to cut their prices in China, destroying their premium brand image, and killing the grey market trade out of Australia as an added bonus. They should have known for instance, that a huge reduction in price in China will cause consumers to think that the product is counterfeit – so they will not buy it. What they should have done was spent some money on marketing and promotion to reinforce their brand whilst maintaining prices. It was a rookie mistake, and it goes to the lack of experience and skills of senior management, and its problems are entirely self inflicted even if they try to blame the change in regulations. So now Danone (Aptamil) and A2 are the top two imported infant formula producers in China. There is room for more but you need to know what you are doing, how to develop a desirable product, and build a credible brand. Things that Blackmores/Bega didnt pay any attention to either when they rushed a me-too infant formula product out the door (10 weeks from concept to launch shows how little thought was put into that product). China is there for the taking – just not by idiots.

      • I highly doubt Bellamy dropped prices willingly… It must because they were not shifting products at the original price.

      • They over estimated the growth rate of product uptake and over stocked. But you still dont drop prices if you are a premium brand. Do you get half price Ferrari’s when they have a slow month? You spend money on promoting your product whilst reducing your manufacturing output, allowing the stock to be absorbed over time. Bellamy’s has poor supply chain control and again, that’s a result of low quality management. If you wanted to cut prices, you cut them in Australia and let the Daigou clear your excess stock for you.

      • A Ferrari is significantly different to, say, a sedan. Milk formula isn´t. Australia can´t compete on “green” (NZ doing that already, very niche), quality (Swiss, Germans… OK most EU and US) or price (EU and US). The idea that you can run a country´s industry like a gourmet cheese selection and not worry about dollars and cents is ludicrous. The whole country is run on two premises: 1) We speak english, which makes us trustworthy. 2) Chinese/Asians are rich and dumb. That is the mentality from tourism, to agriculture, to mining. They better stock on lube.

      • So they had a bump this year – golf clap. They have no expectation of above replacement TFR any time in the future, so while they might have a couple of years of increasing births (as noted for a different reason by Cornflakes) the long term trend is down, with no way of avoiding the effect of the decline in the numbers of childbearing women over the next twenty five years, which will far outweigh the small rise in TFR due to policy change.

        There were 110 million women aged 25- 35 in China last year. In 25 years time there will be a maximum of 70 million in the same age group unless there is very significant immigration. There’s no way to escape the effect this will have on birth numbers.

      • Not apologising as not wrong – births in China have been going down decade by decade since the peak in 60s. The age pyramid guarantees a massive drop in the number of child-bearing age women (currently about equal to the earlier peak about fifteen years ago, so as many as there ever have been and ever will be), so further big falls in births are inevitable.

        Births have fallen 12 million from the peak, and you’re getting giddy about a 1 million birth temporary bump. That’s just getting desperate.

      • Relax Robert
        I’m not accusing you of intentionally misleading readers
        What possible motive would you have to do that?

      • Well that’s a relief, I’m sure.
        Though I suspect there are more misleading notions spread on this site than the idea that average number of babies born in China in the late 60s and early 70s was greater than the number of babies being born in China in the 2010s.

        Given you’re fairly bullish on Chinese births, when and how do you think they’ll get back up above 25 million annually? I assume that’s what you mean by ‘misleading readers’ i,e. you have a strong reason to think that births will continue to climb until they approach the peak I mentioned of the early 1970s style figures?

        btw, if you know of a way I can gain from my opinions let me know, because I sure as shit have no idea what motive I could have.

      • No bullshit – I just don’t think a single year with more births than the previous proves that the prevaling trend of declinging births over the last 45 or so years is now over.

        And if you aren’t able to state that you believe Chinese births are going to keep rising or at least not fall below 16 million again over, say, the next fifteen years (a view not shared by Chinese government demographers or the UN), with at least some attempt at justification, you don’t either, which would make you the bullshitter.

  5. Plus ever nation that has dairy cows has expanded their herds. NZ, USA, Europe….. Not to mention the expansion of the Australian dairy herd.

    • adelaide_economistMEMBER

      There is also disgruntlement on the Chinese internet regarding the ‘Australia milk powder’ using milk sourced from outside Australia.

      LOL. I’m also wondering how many of those Chinese tourists stocking up on propolis at Chemist Warehouse realise that the ‘made in NZ’ on most of it doesn’t mean jack and most of it is actually from… drum roll… China.

      The irony of our neolib overlords selling everything about this country out to the point that the very functioning of the businesses they claim to champion are threatened by the lack of regulation.

      Go ‘free market’!

    • Yes, Australia cannot supply enough organic milk powders to meet the demands of the brands trying to fill that market – Bellamy and others.

      A significant proportion is clean green European via Australia. Quality should be ok, smell of gum trees less so.

  6. If you deal with China you will get burnt. Looked to other countries, it may cost a little more for the product but long term much cheaper to avoid Chinese exporters.

    When I was ripped off,. The answer from my supplier for sending faulty goods was ” its OK to rip you off , you are not Chinese.”

  7. adelaide_economistMEMBER

    The truly awful thing about all of these trade nightmares relating to China is that we… meaning Australia… have been in an almighty rush to completely obliterate any standards we have to ‘integrate’ with a country that is struggling to implement even basic food standards (and of course using various directives to protect trade – making a mockery of their admission to the WTO).

    All through the baby milk powder in particular we just got the media playing the ‘look, 1.3 billion consumers! it’s el dorado’ and a government happily playing along since it fits their narrative of playing up one or two companies making money there and ignoring all the others that failed. Of course we have the successes like ‘Swisse’, which of course was bought up by HK’s Biostime. Another Australian success that went oddly untouted by our innovative and dynamic government.

    • Jumping jack flash

      “making a mockery of their admission to the WTO”
      Don’t get me started on that shenanigans.

      You’re right.
      The “marketers” are living in the past.
      When I took my single unit of introductory marketing back in the 90’s as part of my IT degree, it was all about marketing to kids to establish “brand loyalties” and breaking into China. (Establishing brand loyalties for Chinese kids, then, was likely the apogee of marketing success!)

      These marketers who were fed this tripe in the 90’s are now in their “decision making prime” in their areas of expertise – marketing.

      Well, China has been broken into, and it wasn’t all that great.
      There is now no such thing as brand loyalty.
      There’s as much useless kids’ stuff as ever, all obscure Chinese “brands” though. See point 2

      Its time to try something else, if there is anything else left to try.

  8. A lot of people get pay rises based on how long they have been working in the same firm.

    That is quite silly. People should be paid a base salary and, if deserved, a bonus.

    With the bonus being denied for under performing.

    • I dont know what the best way is, but I do know that your way is open to rorting and if the company that did that to me were to ever need me again I’d charge them a much higher base salary. Why? Because what they do is offer a low base with massive bonuses, then if they need to pay you overtime or redundancy, they base it off the base salary not your annual.

      Workers are more often ‘let go’ for performance issues within the company than for performance issues with themselves. Whether its the wider market (e.g. GFC) or poor management by executives. It is morale crushing to go through that several times. “Oh, the execs pissed the money away on bad consultations, contracts for their mates etc and the company has a quarterly report coming up…”

      There should be a financial penalty for poorly managing your human resources. Putting half their pay in bonuses just means there is an easy lever that management can reach for when they’ve badly misjudged and need to quickly store some cash.

  9. Bellamy, like most of the “food bowl of Asia” meme, is based on the fallacy that Australian (insert item) is the best and that people will pay top dollar simply bc of the Made in Oz sticker. In short they won’t and it isn’t. The dairy producers in Europe and the US have steamrolled Fonterra (as primary producers) and now they are going for the added value of selling the finished product. In the last 6 months we have been contacted by several exporters wanting to get in on the act together with retail chains in china. There is a major deflation in dairy product prices in Europe, so and now 900g tins EXW are in the 6-7AUD range. For organic maybe add 2-3AUD, and dropping. They are gonna get hammered and the brand bought by a HK retailer. That is what lack of productivity does to you.