A2 Milk shares tumble after Nestle launches competing formula

Shares in NZX-listed a2 Milk tumbled after international food giant Nestle confirmed it is launching an A2 infant formula product.

The sharp decline in the stock — which has the biggest weighting on the S&P/NZX 50 Index (12 per cent) — was a factor in driving an already soft share market lower still.
The company's shares closed down 90c, or 6.5 per cent, at $12.94.

Nestle earlier confirmed to the Herald that it was launching an A2 product.

"I can confirm that we are currently launching an A2 product under the Illuma brand," a spokeswoman for the company in Sydney said. No other details were immediately at hand.

Salt Funds' managing director Matt Goodson said a2 Milk's share price was being driven down on the news from Nestle and fears that there may be others waiting in the wings to launch similar products.

"The fear is that if the [A2] market gets commoditised, then the large premiums might start to come back somewhat," Goodson said.

The a2 Milk Co was founded in New Zealand in 2000 by scientist Corran McLachlan, with the support of business partner Howard Paterson, following the discovery that cows naturally produce different types of milk proteins.

Most cows produce the A1 and A2 versions of beta-casein protein, but about 30 per cent of the world's herd produces just the A2 variety.

A2 Milk believes that the A2 beta-casein protein milk is better for people, particularly those who have trouble digesting milk.

Last year, a2 Milk reached an out of court settlement with Australia's Lion Dairy & Drinks over a labelling dispute.

A2 Milk's infant formula sales to China have taken off, and largely drove a 150 per cent lift in the company's earnings over its first-half financial result.

The a2 Milk Co has said previously that it expected broader interest in the A1 protein-free category over time.

A spokesman said it had been monitoring a number of companies operating in China and considered that new entrants should assist in building credibility and awareness for the A1 protein-free proposition, and hence build the overall category more quickly.

"As a pioneer and innovator of the A1 protein-free category — with strong brand credentials, unique intellectual property and being focused solely on A1 protein-free products — the company considers itself well positioned to benefit from overall category expansion," he said.