A2 Milk will start supplying infant formula to the United States, which is suffering from a nationwide shortage. (File photo)
The a2 Milk Company has gained regulatory approval to sell its infant formula in the United States after authorities relaxed import rules to counter a nationwide shortage that sent parents scrambling for supplies.
The US Food and Drug Administration announced on Wednesday local time that a2 Milk’s Stage 1 Platinum Infant Formula for infants up to six months, and its Stage 2 Platinum Follow-on Formula for 6 to 12 months could be sold at major US retail outlets. The company said it is also able to supply its Stage 3 toddler product.
The US is facing a shortage of infant formula after Abbott Laboratories, which was the country’s biggest supplier of infant formula powder, recalled its products and closed its Michigan plant in February following reports of bacterial infections in infants who consumed its products. After several setbacks, production resumed at the plant in July, although it’s not running at full capacity, according to US reports.
The plant shutdown and a recall of infant formula deepened an existing shortage caused by pandemic supply-chain issues in a nation where less than half of babies were exclusively breast-fed through their first three months, according to a Reuters report.
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To alleviate the shortage, the FDA began allowing baby formula imports from foreign manufacturers who didn’t usually sell their products in the country.
A2 Milk, which already sells fresh milk in the US, lodged an application with the FDA to supply infant formula in late May. It was slower to receive approval than rivals such as Australia’s Bubs, which already had its US application underway before the crisis.
In a statement to the NZX, a2 Milk said it had been granted temporary approval to sell infant formula through to January 6 next year. It noted companies could apply for an extension through to October 2025, or for permanent market access.
a2 Milk™ and lactose intolerance study – New Zealand, 2017
While the US product had the same formulation as a2 Platinum, it required different scoops, mixing instructions and labelling requirements to meet FDA requirements. The product was not currently available in inventory and needed to be manufactured as soon as possible, the company said.
A2 Milk said it would likely take nine months for its manufacturing partner Synlait Milk to make 9 million cans of a2 Platinum, although it said sales were expected to be significantly below this level.
An innovative specialty milk marketer, a2 Milk has created a new global dairy category centred around the health benefits of A2 protein milk, which has been emulated by the largest food and beverage companies in the world and been hugely successful in China, the world’s largest infant formula market.
While the US is the world’s second-largest infant formula market, analysts say it is smaller and more concentrated than China, with lower profit margins and trade barriers in the form of high tariffs and an onerous FDA approval process.
A2 Milk said the US represented a significant opportunity to develop its brand in the infant formula category over the long term.
However, at this early stage, it was difficult to predict the potential for infant formula sales in the US which was a highly competitive market to enter, the company said.
A2 Milk said it may sell an extra 1 million cans in the six months to June 30 next year, which is the second half of its financial year. Actual sales would depend on customer demand, consumer offtake, supply shortages and market conditions at the time, it said.
“In terms of FY23 earnings impact, whilst incrementally beneficial, the company expects gross margins to be lower than average, distribution costs to be higher due to potential air freight and rework costs in the near term, and incremental marketing and trade investment to enter the category,” it said.
Shares in a2 Milk jumped 5.9% to $6.09, while Synlait Milk advanced 0.7% to $3.10, in mid-afternoon trading on the NZX on Thursday.
Fonterra Co-operative Group, New Zealand’s largest dairy company, said it had set aside some infant formula stock for the US market earlier this year, but allocated that to other markets when the FDA announced a deferral of applications.
“In the paediatrics category in the US, our strength is our B2B ingredients business and many of our customers are either established infant formula players or have recently gained FDA approval,” the company said in a statement.