The A2 Milk Company Ltd (ASX: A2M) share price has gone up after renewing a key Chinese agreement.
A2 Milk is one of the largest infant formula producers from the Australia and New Zealand region.
A2 Milk’s renewed Chinese agreement
The ASX share has renewed its exclusive import and distribution arrangements with China State Farm Agribusiness Holding Shanghai (CSFA) for a term of five years from 1 October 2022.
CSFA has been A2 Milk’s strategic distribution partner in China since 2013. It’s the exclusive import agent for A2 Milk’s China label products, including the infant formula.
CSFA is a subsidiary of China National Agriculture Development Group Co, which (through a subsidiary) owns a 25% interest of Mataura Valley Milk (MVM), alongside A2 Milk which owns a 75% interest.
Management comments
The A2 Milk Managing Director and CEO David Bortolussi said:
We are pleased that our long-standing arrangements with China State Farm have been renewed for a term of five years through to the end of September 2027.
The extension of arrangements with China State Farm confirms the strength of our relationship with key partners in China and our shared confidence in the future.
We are grateful for China State Farm’s ongoing support and our relationship with CNADC group which will be critical to our joint success in China going forward.
But A2 management weren’t the only ones to provide some comments.
The Chair of China State Farm Agribusiness Group, Zhang Lei, said:
The a2 Milk Company has been an important strategic partner of ours for many years.
We are delighted and honoured to continue our relationship and partnership with a Company that has achieved such unique success, as the pioneer of A2 protein products in the China market, with a strong brand and ultra-premium products.
This renewal signals the strength of our long-term partnership and we look forward to the future with great excitement.
Final thoughts on the A2 Milk share price
A2 Milk was formerly a market darling. But it’s down more than 70% since the peak in July 2020.
There’s a chance that A2 Milk could get back to generating those types of profits, but it will need to win a lot of Chinese consumers. So, this deal is important to keep that potential alive.
I’m not sure I’d call A2 Milk a buy or not, it’s hard to say how successful it will be with Chinese demand. I think there are other ASX growth shares with better long-term potential.
