Australia struggles to sate China's appetite for foreign baby formula

SYDNEY - Supplies of baby formula are drying up in Australia as savvy Chinese tourists snatch tins of the "white gold" off supermarket shelves to resell them for a profit at home, where a poisoning scandal has left consumers wary of domestic brands.

As Australian lawmakers pass a A$100-billion (US$70 billion) free trade pact with China, the shortage suggests food manufacturers in a country of 23.6 million people will struggle to meet the demand from a country of 1.4 billion.

"There has been a lot of talk about a 'mining boom to dining boom' but the reality is that on sheer volume Australia is not able to supply them with all their caloric needs," said Phin Ziebell, an agribusiness economist at National Australia Bank.

"We simply can't do it." China's appetite has forced the top two supermarket chains, Woolworths Ltd and Coles, owned by Wesfarmers Ltd , to ration sales of baby formula, or "white gold", as Australian media have dubbed it, while manufacturers boost output to meet demand.

After Hong Kong and Britain adopted enforced rationing in 2013, Australian sales of baby formula have soared, as Chinese visitors exploit the safety concerns over domestic products to offload Australian purchases at mark-ups as high as 500 per cent.

Shoppers from China, which eased family planning curbs last month to allow couples to have two children, also benefit from a weak Australian dollar, now hovering near one-month lows.

Although legal in Australia for exports of less than 10 kg (22 lb), the trend set off a backlash this week, when a mother posted a picture on social media of someone buying what appeared to be one retailer's entire stock of about 10 crates of formula.

Shares of formula maker Bellamy's Australia Ltd have risen nearly 10-fold in a year, taking its market value to almost A$1 billion, from A$97 million at listing in 2014.

Bellamy's charges A$38 in China for a tin sold at A$25 in Australia, the company says on its website.

Shares of rival A2 Milk have risen 68 per cent since they listed in March. "There's not product shortage as much as there is heightened demand by Chinese tourists," said Peter Nathan, A2's chief executive for Australia.

"We're doing everything we can to increase supply and it's up to retailers to manage product appropriately."

In a statement, Assistant Trade Minister Richard Colbeck said he had spoken to supermarket and pharmacy representatives about ways of ensuring access to reliable supplies of infant formula for Australian parents, but did not elaborate.