Six Million Kids Turn a Tech Minnow into a Dairy Giant

I hate planes. Actually I ought to rephrase that. I love planes. I simply hate travelling on airplanes. Especially in economy class.

I’ll be truthful, I can’t afford to travel business class all the time. It’s just not really feasible with the amount of travelling I do. So usually I’m down the back end. Squeezing into chairs with insufficient leg and shoulder room.

At 6’3″ and a nip over 100 kilos I am just not physically suited to economy class. I guess it should inspire me to make more gold coin I guess… Anyway although I do bemoan the sardine-can-like feeling, there’s an upside to the travel I do.

Actually there are a few upsides. I get a chance to fulfill a lot of interesting people through many different backgrounds. And I also see how different consumers behave amongst the duty free shops.

Now you might be thinking, consumer behaviour at duty free stores, how is that interesting? Nicely I’m about to tell you.

You see people usually buy things from duty free that they want but can’t get because cheaply in their home country.

That’s why you see hoards of Aussie’s loaded up with booze on arrival back home. Or in the UK it’s a couple bags associated with perfumes and smokes. Asia is a unique in that many returning travellers are transporting some kind of UGG Australia item, or variants of wellness food from Manuka Honey to milk powder.

Sitting at gate lounge eight before my long trip back to the UK, I saw a young Oriental couple carrying a tote of milk powder with them. I noticed it since about 15 minutes earlier I would taken a photo of the same carry bag at the Duty-Free shop.

I took my personal photo because I was fascinated by this milk powder display. As you can see, nestled in among all the phones, cameras, earphones and wireless speakers is a giant array of milk powder.

It was front and centre as you stroll to the international gate lounges. You could not miss it. The other factor that I was interested by had been the price. $98 a bag.

I thought that was pretty expensive. But with high (and growing) demand for milk and milk hues maybe it’s actually pretty cheap.

The greatest change to China in 35 years

To have the display so prominent among all the sheep skin and UGG boots must mean they shift a fair bit of the actual stuff.

But then again, when I look at the stock price of Australia’s big nutrition companies, it actually makes very good sense.

For example, Australia’s Blackmores [ASX:BKL] is up 419% each year. The company’s vitamin products are selling away because of immense demand in China.

Capilano Honey [ASX:CZZ] is up 168% in a year. This is off stronger demand across Asia and the promise of the Australia-China free trade agreement.

And for any company selling high quality foods into China things are about to radically change.

You see, in October China chose to drop its infamous ‘one child policy’.

This policy is a relic from the old Communist Party. The policy put a prohibit on couple having more than one child. Its purpose was to avoid a ‘population bomb’. The thought at the time was that China’s population would exponentially grow out of control.

That never happened.

But for 35 years the policy has been in place. It’s now on the out because China faces another long term problem. An ageing population.

And we all know what kinds of problems that can create. You only need to look to Japan for evidence.

With the one kid policy lifted, Credit Suisse estimate that by 2017 China often see an extra six million new births yearly. That might not sound like a great deal for a country with a population of 1.357 billion. But remember which six million is the equivalent to 25% associated with Australia population. So that’s a quarter of Australia created every year into China…simply by lifting the policy.

That’s a lot.

Who benefits? The milkmen

In a report on the birth policy Credit Suisse explain,

‘Related sectors including baby formula, diapers, medicine, kids wear, and appliances. Assuming cost of raising at 40,000 yuan per year, additional consumption will be 120-240 billion yuan per year from 2017, translating into 4-9 per cent of total retail sales.’

This will probably be big for Aussie meals companies. For one company it’ll completely change the game.

In August/September this year technology company, OnCard International [ASX:ONC] chose to change direction. The company had been getting out of the tech sport and into farming.

They offered their OnCard tech. Then with the proceeds they bought a plantation.

They also appointed, Rob Woolley as Chairman. This is significant. The thing is Woolley is also Chairman of baby food maker, Bellamy’s Australia [ASX:BAL].

But the largest news of all is the bet for one of Australia’s largest dairy products farms the Van Diemen’s Property Company (VDL).

Word has it, together with OnCard, a consortium of Chinese buyers is in the bidding war. As far as who will win…we don’t know yet. It looks guaranteeing for OnCard. But there’s been no definitive word either way.

What we all do know now is the price for VDL will be around $180 to $220 million.

Why so much for dairy farms? Well VDL produce around 100 million litres of milk and seven.7 million kilograms of milk solids per year. And where do you think most of this will go ahead now? That’s right — China.

What happens if OnCard wins? Well there’s a possibility they could be the ‘Blackmores’ or ‘Capilano’ associated with 2016.

But it’s not just OnCard. Any company that sells food and nutrition directly into China could be in for the bumper few years ahead. It’s one of the most exciting times for Aussie food companies ever.

Regards,

Sam