A2 Corp will sell the infant formula to the Chinese distributor with first sales expected by June 2013

A2 Corp will sell the infant formula to the Chinese distributor with first sales expected by June 2013

New Zealand milk specialist A2 Corp. is to enter China through a distribution deal that will see the company launch of a line of milk powders and infant formula in the country.

In a stock market announcement, the company said it has signed a distribution agreement with China State Farm Holding Shanghai Co (CSF), a subsidiary of state-owned China National Agriculture Development Group Corp, as the exclusive distributor of its A2 brand infant formula in China.

The company said developing an infant formula business in "highly prospective markets" is part of its "strategic agenda".

The global infant formula market is valued around US$17bn at the retail level, with China accounting for around $6bn and "growing rapidly" at around 12% per annum, A2 Corp. said.

The move comes on the back of an agreement made in April with New Zealand dairy processor Synlait Milk to source milk from accredited New Zealand dairy farms and manufacture A2 brand milk powders and infant formula at Synlait's facility in Dunsandel.

Having established supply, A2 Corp. then appointed CSF as the exclusive distributor in the Peoples Republic of China.

The distribution agreement is for three consecutive three-year terms with renewal conditional on the achievement of agreed performance hurdles including distribution coverage. A joint marketing committee comprising representatives from A2 Corp. and CSF will control marketing activities, funded by contributions from each party and linked to sales volumes.

The business plan assumes annual sales revenues growing progressively to around US$50m in year four.

Production of A2 brand infant formula will start in December, with the first sales to China to take place by June.

"Today represents a further significant development in the company's evolution," said A2 Corp. managing director Geoffrey Babidge. "Having now secured both supply and distribution for A2 brand infant formula with highly credible and experienced market participants, A2C is now well positioned to enter the Chinese market which will support the company's strong future earnings growth profile."