An interesting article on the over-reaction of analysts, investors and the media to the China regulations.
http://www.theaustralian.com.au/bus...a/news-story/b1ad7c933759cb12f35ba7b684449580
Global Food Forum: Gary Helou says stay course in China
- Glenda Korporaal
- The Australian
- April 21, 2016 12:00AM
Australian companies need to be prepared for more sudden changes of business regulation in China, Murray Goulburn chief executive Gary Helou says.
Speaking at the Global Food Forum hosted by
The Australian, Visy and the Grains Research and Development Council in Melbourne yesterday, Mr Helou said moves like last week’s announcements from Chinese authorities about new restrictions on e-commerce were “clunky” but would be part of doing business in the nation.
He said he was more shocked about the reaction of the Australian media and sharemarket analysts to the developments, urging more understanding of the changing nature of doing business with China.
“China is a fascinating market which is immense, rich and prosperous,” Mr Helou said.
“Engaging in a market of that size with rapid change around it brought on by e-commerce, we should expect more of these policy announcements, which will be confusing in the initial phase but which will become clearer in future.”
Mr Helou’s comments come after Chinese authorities last week moved to increase taxes on food and other products imported into China through e-commerce platforms such as Alibaba.
These were also accompanied by a “positives list” of what dairy products would be allowed into the country through e-commerce channels, which surprised many exporters.
Concerns over the rules sparked a savage share-price selldown of many exporters, including Blackmores, Bellamy’s and Murray Goulburn. Mr Helou said the initial “positives” list was “ambiguous” and had allowed Murray Goulburn to import flavoured milk into China but not plain milk.
But he said his company had “sought clarity” and the list was later amended so it could continue to bring in its long-life milk and adult consumer milk powder.
He said his company was “initially shocked by some of the response from the media and analysts, but always calm and confident about our business”.
Also speaking at the conference, Ellerston Capital chairman Ashok Jacob said there would be “chopping and changing continuously for years to come” by authorities in the Chinese market.
Mr Jacob said there was a deep sense of insecurity in China about the supply chain for its food that dated well back before the scandal of a few years ago, which saw melamine added to powdered baby formula.
He said investors in companies selling food into China could expect their revenues to go up because of the strong demand but their share price would be subject to potential changes of government regulation.
“Where is the level where demand is going to equal supply?” Mr Jacob said. “I suspect it is at a much higher level, (but) the risk is the regulatory issue and to what extent that slows it down.
“Australia is in this unique situation where it has incredible relevance to the Chinese consumer, who perceives Australian brands and Australian product to be incredibly safe.”
The chief executive of Bellamy’s Organic Food, Laura McBain, said her company, which sells infant formula into the Chinese market, had been expecting regulation changes.
She said the Chinese authorities had put out a white paper on the regulations on imports of infant formula about three years ago, including their plans for future changes.
The recent moves to impose tighter quality controls on imports of infant formula were an extension of China’s domestic regulations to the import market, Ms McBain said.
But her company had taken the view that the Chinese were trying to make sure their citizens and consumers were safe, including from using those products imported through e-commerce sites. This was the same thing Bellamy’s wanted for its consumers.
“We have always been looking at the regulatory framework in that light and moving to make sure our business is well positioned to deal with any of those regulations,” Ms McBain said.
“It wasn’t a great surprise to us what happened in China last week. We have been communicating for some time that we expected those changes to take place.”
Peter Nathan, the chief executive of A2 Milk, said the impact of the changes had been “overblown” with the new rules having little tangible effect on his business.
“Operating successfully in China is no different in some respects to operating successfully in any new market — you have to understand your consumer, understand the environment,” Mr Nathan said.
“I think the big difference is that the degree of complexity with China is so much greater,” Mr Nathan added.
Bell Potter Securities stockbroker Hugh Robertson said Australia was on the cusp of a 50-year run in its agriculture cycle that would far exceed the rewards of the mining boom because of the increasing demand for high-quality food from Asia, particularly China. Mr Robertson said the agricultural food boom was “quite different” from the mining boom, which had lasted 10 years, with Australia taking five years to get involved in it.
“Australians are just beginning to twig to the fact that we are really good at (agriculture) and the provenance of Australian food is outstanding,” Mr Robertson said.
He said Australia was already one of the most regulated countries in the world when it came to food and its companies could easily cope with changing regulation in countries such as China.
Mr Robertson said the fall in shares of some companies selling food into China last week — including Murray Goulburn, Blackmores and Bellamy’s — could have been caused by short-selling in the stocks. He said there were large numbers of short sellers in the shares of these companies because their prices had gone up so strongly in a short space of time.
National Australia Bank’s Asian agribusiness executive, Laura Mattiazzi, said the recent tightening of controls on the import of dairy food by Chinese authorities should be seen as a positive for Australian companies. “The Chinese government is safeguarding all the food coming through across the border to make sure it is safe and they know who is coming in and what’s going out,” Ms Mattiazzi told the forum.
“They are actually protecting our reputation of being clean and green. It’s a wonderful thing.
“It may involve some short-term pain but it means long-term gain. The last thing we want to see is a scandal in an Australian brand.”
(20min delay)