Bellamy’s Australia Share Price Skyrockets on Deal

Bellamy’s Australia [ASX:BAL] is a Tasmanian based company. They are involved in the production of Australian organic foods for babies and children. You wouldn’t think a baby food stock could be a top performer on the ASX. But you’d be wrong.

BAL’s share price jumped almost 7% on Monday. BAL announced a new deal that would allow them to keep up with growing demand from overseas. This gave BAL shareholders a great end to the month of November, up 39.83%.

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Source: Google finance

Bellamy’s manufacturing deal

BAL has entered into a strategic manufacturing arrangement with Fonterra Australia [ASX:FSF]. FSF, being the world’s biggest dairy exporter will help BAL to keep up with growing Chinese demand for their products.

FSF will manufacture a range of new baby powders for BSL over the next five years. Manufacturing won’t commence till mid next year. But BAL’s CEO, Laura McBain, believes the arrangement was necessary to keep up with future demand.

We have been working throughout this year to seamlessly add capacity so that we can meet the growing demand of our certified organic formulas from Australian parents and our export markets’ said Miss McBain.

And they believe Chinese demand for baby food will continue to grow. FSF managing director, Judith Swales said ‘You’re seeing a change in demographics in some of the emerging markets and places like China, mums going back to work then obviously their children need to be fed’.

 

China’s love for Australian baby formula

To Chinese consumers the Australian dairy industry is seen as high quality and reliable. This perception has made Australian baby formula famous in China. The recent surge in demand has left supermarkets scrambling for stock. And many young Chinese businesses are specialising in buying Australian baby foods in bulk to sell them in China.

Why this demand for reliable high quality branding?

In 2008 there was a scandal surrounding Chinese milk. The scandal involved milk and infant formula containing excess melamine which affect hundreds of thousands of children. Six infants died from kidney stones and other kidney damage with thousands more being hospitalised.

So in order to guarantee the safety of their child, Chinese mothers have looked to Australian brands like BAL to guarantee quality and reliability.

 

What’s next for Bellamy’s?

BAL hasn’t shown any signs of slowing down, and neither has Chinese demand for Australian milk products. China’s abandonment of the one child policy could speed up the demand for baby formula. So as of now it doesn’t seem like a passing fad.

 

Härje Ronngard

Junior Analyst, Money Morning


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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