China Is Buying Up Australia’s Supply of Baby Formula

Manufacturing products stamped “Made in China” may be a major force in the Chinese economy, but when the country’s growing middle class shops for groceries, it's more interested in products with an Australian pedigree. After more than a decade of sometimes deadly food-safety scandals and demand for healthy and organic products rising, consumers are turning away from domestic brands—and Australian companies, whose proximity to China allows them to ship products quickly, are benefiting in a big way.

Although many Americans have jumped on the healthy lifestyle bandwagon, Chinese consumers aren’t quite as awash in kale chips, almond milk, and grass-fed beef products. But while not exactly a neighbor, Australia, 4,500 miles to the south, is helping to quench China’s thirst for Western-style healthy food products. Given China’s swelling middle class and the now-obsolete one-child policy, consumers are often willing to shell out more cash to buy into this kind of lifestyle, according to Agence France-Presse.

“What they are thinking is if the milk powder is being drunk by Australian babies, it should safe for Chinese babies,” marketing consultant Benjamin Sun told AFP.

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In 2008, China’s horrendous baby formula scandal resulted in the death of several infants and the hospitalization of thousands more. The milk powder was contaminated with the chemical additive melamine, which caused kidney stones and kidney failure in the affected babies. Following the incident, China’s growing middle class started to raise its standards for baby product brands.

Infant formula and other products in high demand—including vitamin supplements and honey, according to the Australian shipping company StarTrack—often come through unofficial online channels, such as the e-commerce website Alibaba, or purchasing middlemen known as daigou. Both means of buying can result in serious upcharges for Chinese consumers, but it doesn’t mean they won’t pay the price.

Between last August and December, Australian health brand Blackmores, known for its superfood blends and vitamin packs, saw its revenue increase 66 percent, jumping from $206.7 million to $342 million. About half of Blackmores’ sales come from the gray market in China, according to a report published Feb. 25 by the investment research firm Morningstar. Last week, Blackmores employees were promised large bonuses from the uptick in profits.

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On the demand side, Australia-based grocery stores that ship to China, such as Coles and Woolworths, are struggling to keep up with the skyrocketing demand from Chinese consumers. Both chains are placing limits on how much of each product a customer can buy.

In January, Woolworths was accused of canceling baby formula orders from Australian residents with Asian names. Some Australian customers took to social media to express their frustrations with the consistently sold-out products in the brick-and-mortar stores.

Chinese consumers are turning to foreign products as the China Food and Drug Administration overhauls its food-safety standards. Last fall, the CFDA issued new food-recall regulations and standards for food inspection. It also introduced practices to regulate and distribute food-manufacturing licenses.

But as a country with more than a billion residents, China has an appetite that may be hard to keep up with.