Originally Posted by
NT001
It’s been suggested previously that Fonterra or some other mainstream milk producer might want to take over a2MC in order to market A2 Milk as an alternative to standard milk for consumers, especially those who experience digestive discomfort from drinking normal milk containing A1. The theory is that this might allow the buyer to gain a market niche and to some extent limit the damage to mainstream milk caused by the A1 debate.
This scenario has its surface attractions, but it would involve a raft of difficulties.
For a start, it could not be done without acknowledging that the BCM7 peptide generated by A1 milk presents health problems. Not something the mainstream industry wants to do, certainly not Fonterra which is on record as rejecting the the A2 proposition as scientifically flawed.
According to Prof Woodford’s book “Devil in the Milk”, Fonterra is said to have a fallback strategy that it could adopt if necessary to confront A2. But he notes that Fonterra sees A2 as a risk rather than an opportunity for the NZ dairy industry, which he says “seems a huge pity”.
This position could only change if Fonterra did a major scientific back-flip. Of course nothing is impossible, and the scientific evidence against A1 beta-casein is certainly going to increase the pressure – in fact it is building up already in a quiet way that doesn’t get attention in the media.
But there are problems.
1. The takeover cost: a2MC’s market capitalisation is currently close to $400m and likely to increase, especially if there is takeover talk. Would it be worth it just to offer an alternative digestion-friendly niche product at a steep premium price that will always deter the majority of consumers? Even if consumers know that A2 milk is better for them, most of them won’t understand why and will continue buying the standard A1-contaminated mix at half the price.
2. Converting output to A2. There’s a difficult decision to be made – is it intended that A2 would just be a niche line, or would it be pushed to become a mainline product? It’s not too hard for a few dedicated farmers to create pure A2 herds for a relatively small player like a2MC by swapping their unwanted A1 cows for A2 ones, as some have already done in NZ, Australia, Britain and the US, but larger-scale conversion is another matter. It would take years. NZ is actually well placed to do it, as most of its breeding bulls are already pure A2, but it would take a lot to convince debt-ridden farmers that converting their herds to A2 is an appropriate idea at this time. It would involve significant loss of production as they cull their A1 cows, and extra work in managing split herds in the milking sheds.
3. Political considerations. Farmers who decided against switching to A2 would object to A2 being promoted as “safer” and more “consumer-friendly” than their product and meriting a premium price. There’s no sign of a desire by grassroots Fonterra suppliers to convert to A2 although a small handful are doing so. Fonterra’s commercial decisions are made by a board of directors elected by its farmers at large, and will reflect broad farmer sentiment.
4. Economic damage. One of the main reasons Fonterra opposes the A2 hypothesis is that it is based on the assertion that standard milk presents health risks. If Fonterra were to adopt the A2 line, it would effectively be announcing to global consumers that it has concluded standard milk is risky. Remember Sanlu, melamine, and the botulism scare and the economic and reputational damage these affairs caused Fonterra. There would be a costly global consumer backlash against Fonterra products, reducing NZ’s dairy income while other producers such as Nestle would of course mount campaigns defending the safety of their products. It would be incredibly hard to spin such a decision in favour of NZ’s dairy production.
5. Scientific advances. Just as the global public eventually came to realise that smoking can be lethal, the links between A1 milk and medical problems such as autism, diabetes, heart disease and cot death will gradually become more widely recognised. A dairy producer would need a clever strategy indeed to manage this market dilemma. At present they all choose to just ignore it, knowing that food safety authorities in NZ, Australia and Europe still continue to say incorrectly that it’s not an issue. It will become an issue.
Any dairy outfit contemplating a takeover of a2MC would have to have a well-thought-out plan as to what to do with it.
That’s not to rule out some offshore dairy operators adopting A2 Milk as a niche product, but I think not by means of a takeover. There are people in the industry who buy the A2 proposition and see merit in offering it as a premium specialty. But this could be done under licence. Interestingly, the current chairman of Dairy UK, the British dairy industry organisation, is actually a member of a2MC’s British board and a supporter of A2 as a niche player in the market. That seems to make more sense.