Friday, March 29, 2024

A2 Milk mulls China manufacturing

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A2 Milk is looking at its supply chain and has not ruled out establishing a manufacturing plant in China.
A2 chair David Hearn said the company is looking at smarter ways of doing business.
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Could manufacturing in China be on the cards for A2 Milk? Outgoing chair David Hearn doesn’t rule it out. 

“There is no doubt that one of the considerations is some form of capacity of some sort in China, but it’s not a decision we have made,” he told BusinessDesk after the company’s annual meeting.  

He pointed out that Feihe, the No 1 domestic brand in China, can make infant formula and be in market in two weeks. 

A2 Milk faces a completely different scenario.  

“If we make it in [NZ dairy processing company] Synlait, we’ve got a month’s clearance at the port and we’ve got to ship it out for six weeks,” he said. 

“We’ve got to have it in a warehouse cleared by Chinese authorities, and its four months old before we get there.” 

As a result, A2 was looking at its full supply chain – distribution, warehousing, manufacturing and packing – and thinking about smarter ways of doing things. 

“We have some outline plans; we will be working in the very near future to try and finalise those.” 

It won’t, however, happen overnight.  

“Am I sitting on a plan to invest into China manufacturing today? No, I am not. 

“However, we are committed to investing in an end-to-end supply chain that we can control and manage and that means we have to think about how to lay that supply chain out.” 

It will take its time to develop a “coherent and proper” strategy “which will include New Zealand and will include China in its consideration as to where we are best placed to put assets”. 

A2 Milk has already moved into manufacturing in New Zealand, buying a 75% interest in Mataura Valley Milk last year, a move which lessens its dependency on its partner Synlait Milk. 

A key feature was that China Animal Husbandry Group (CAHG), retained a 25% interest in Mataura alongside A2 Milk. 

Synlait Milk, meanwhile, has also considered diversifying and is onboarding a new multinational customer at its Pokeno plant.

He also emphasised A2 Milk had recently brought skilled people on board, like Chopin Zhang as chief supply chain officer. 

He has significant experience in supply chain management and has held senior executive and supply chain leadership roles with infant formula and soymilk products company Yashili and food company Danone. 

He also pointed to director David Wang, who also has extensive supply chain experience. 

“We are beefing up our capability, so we now make the right analyses and the right decisions,” Hearn said. 

On Friday, A2 Milk announced that Hearn would be stepping down at next year’s annual meeting after nine years in the role. 

While there’s no written rule, “there’s sort of guidance that says nine years is about the term you should aim to do”. 

He said it was common knowledge the business had been on an extraordinary run before hitting a series of challenges, driven mainly by covid-19. 

“We’ve gone through a period of re-evaluation, reskilling, better data, looking at what we need to do to grow the business going forward. We are now emerging with a much stronger platform and a much more certain future.”  It wouldn’t have been right to leave during a crisis, he said, but “now is not a bad time to leave”. 

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