Baby formula Shortage presents an opportunity for Aussie companies

The USA has seen a peculiar instance of widespread baby formula shortages. In many states around the country, more than half of the formula has been sold out in stores. Across the entire country, 40% of the formula is out of stock.

Causes

Firstly, and quite tragically, there were recently two infants who died from a rare infection associated with one of the manufacturing plants of the formula. Investigators found traces of the pathogen Cronobacter Sakasakii in a Michigan production plant. In response, the FDA recalled several brands of formula, and the public was advised to avoid buying products tied to the plant. This has added further pressure as some in the market packed and have been hoarding the safe baby formula.

Secondly, the pandemic has caused large issues in the supply chain. Whilst many other products had to deal with supply chain crunches, for some reason the baby formula was hit particularly hard as consumers hoarded formula to extreme levels. The high volatility meant that producers could not get a clear gauge of how much supply the market needed. There was also an increase in births across the country, and the need for supply jumped again. In summary, manufacturers were unable to accurately predict the supply that was needed due to the extreme changes in the demand.

Lastly, the USA’s trade arrangement and regulatory processes made it very difficult for overseas manufacturers to supply formulas to the USA. European products and suppliers tend to have a hard time passing FDA regulatory processes. The process is strict and can become quite drawn out. Consequently, the international market has not yet been able to support the shortfall.

Opportunities

The shortage has provided some opportunities for companies within Australia. Specifically, Bubs Australia and A2M Milk have been able to benefit from the shortage. Both companies saw their share prices jump as the market reacted to the news. Furthermore, BUB was given fast-track approval from the FDA to supply its formula to consumers in the USA. With the shortage set to continue in the short-term future, A2M and Bubs may continue to some positive momentum in the short-term future.

he immediate share price of BUBS opened higher on the news before selling off as long terms investors ‘sold the news’ and A2M saw a strong jump in share price. Both share prices have now settled as the market determines what to do next.