A tweet from Joe Biden has sparked a rally in infant formula makers. Bubs Australia stock rose 57 per cent in the past month, after the US president announced that the Sydney-based company’s product was on its way. Shares in regional peers also surged. But exports to a shortage-hit US market are not enough to counter a structural supply and demand imbalance in Asia.
A severe baby formula shortage in the US has pushed health authorities to approve imports from companies such as Bubs, which will ship at least 1.3mn cans. Local peer A2 Milk submitted an application to US regulators last week. A sales and marketing boost should follow.
That is much needed for formula and dairy companies in the Asia-Pacific region. They have long been running on razor-thin operating margins. Low profitability has been a characteristic of manufacturers in South Korea and Japan, which include Meiji, Morinaga Milk, Megmilk and Namyang Dairy, for over a decade. These companies are dealing with weak demand for formula, on top of a large surplus of milk.