Keith Woodford describes how the major global dairy companies are now reacting to the A2 milk phenomenon by climbing aboard with their own A2 products

Keith Woodford describes how the major global dairy companies are now reacting to the A2 milk phenomenon by climbing aboard with their own A2 products

By Keith Woodford*

A2 dairy products are now mainstreaming on a global platform. In marketing parlance, A2 is becoming an industry disruptor.

A2 dairy products are characterised by being free of A1 beta-casein.  Instead, all of the beta-casein is of the A2 type. In contrast, most milk contains a mix of A1 and A2 beta-casein, and this milk is loosely referred to as A1 milk.

It is only among cattle with European antecedents that A1 beta-casein is found. It is very common mutation in these cattle. No other mammal species, including humans, goats or sheep, produce A1 beta-casein. All can be considered A2.

The big driver of A2 industry growth is increasing acceptance of health benefits relative to A1.

Back in April I wrote about A2 dairy products shifting from a brand to a category. In that article I focused on the new players who were entering the market, including Fonterra in New Zealand, plus Nestlé and Mengniu in China. 

Since then, Nestlé now extending its A2 reach into infant formula brands in both Australia (with NAN A2) and New Zealand (with S-26 A2). 

Fonterra has also moved from a prior position of attack, first to gentle talk, and now to gentle walk, with Anchor A2 milk becoming widely available in recent weeks in supermarkets across both major islands of New Zealand. However, the Fonterra walk is indeed gentle as they traverse the tight rope between promoting A2 milk while not damaging their existing market-dominant A1 products.

In America, A2M is selling its fresh milk through more than 8000 stores, with many of the big-name supermarkets stocking it. There is good distribution in all the big-population coastal states but the reach has still to be extended across inland states.

In Australia, A2M has market leader status with its A2 fresh milk product now being number one by value. Freedom Foods has recently entered the Australian market with a UHT (non-refrigerated) milk product. Inevitably, this product will also be aimed at China.

A2 milk produced by A2M is also now widely available in the UK. Elsewhere in Europe, including Russia, niche brands of A2 are starting to emerge. A2 products are also now available in India, Korea, Singapore and elsewhere across Asia.

Among all this activity, the biggest mover has been A2M’s a2 Platinum infant formula, with the global supply produced for A2M by Synlait in New Zealand. Three years after market launch, it is already the market-leading brand in Australia with 32 percent market share.

This phenomenal growth of a2 Platinum is in the context of an overall Australia infant formula market that has itself been expanding rapidly, with the Australian market being a stepping stone to the Chinese online market.

The way this works ls is that many thousands of Australia-resident Chinese daigou (traders) purchase a2 Platinum it either wholesale or retail in Australia and then sell it online to China through their personal networks. 

For a long time, this market was considered to be a ‘grey trade’ of dubious authenticity, but it is all out in the open. Cargo planes carry the aggregated quantities up to China each day, where it is cleared by China’s customs agency. The product then fans out across China directly to the purchasing mums and dads. It is a very efficient system of logistics.

There is still only a small proportion of milk consumers across the world who understand anything about A1 beta-casein health characteristics. However, the big global dairy companies have looked out to the horizon and they have seen the future. All of them now have their A2 developmental projects, either above or below the radar.

The turning point has been the spectacular success of A2M as a company, which after more than ten years of struggling is now running big profits which have been increasing exponentially. Although A2M is still nominally a New Zealand company with joint Australian and New Zealand stock exchange listings, most of the shares are now held by investors from Australia and beyond.

I have been both observer and participant in the A2 story for 15 years. Back in 2003 when I was a professor of agribusiness at New Zealand’s Lincoln University, I became aware of the emerging science and the industry disruption that this would eventually cause.

In 2007, I wrote a book ‘Devil in the Milk’ setting out both the health issues and the industry politics and how they interacted. The big players aimed to take no prisoners and that was part of the story.

In subsequent years I also became closely linked into the research and have co-authored multiple research papers in various international journals with various medical professors.

For a long time, the mainstream industry had considerable success claiming that A2 was no more than a marketing gimmick. However, with more research becoming available that has become a harder argument to sustain. So, big companies such as Nestlé (the largest global dairy company) and Fonterra (the largest across-border trader of dairy products) recognised this was a high-risk strategy.  Much better to move across to the winning side!

In terms of scientific messaging, the big companies are still sitting back. For them, moving to A2 is a defensive measure to maintain their position in the industry.   They would still be happy if the A2 issue were to go away. As for A2M, their focus will be developing their own specific brands rather than necessarily developing the overall category. So, there will be lots of mixed messages.

In contrast, my ongoing focus is on communicating the essential science, and then letting the category development take care of itself.

The essence of the science is that A1 beta-casein releases, on digestion, a fragment called beta-casomorphin-7, written for short as BCM7. This protein fragment, as evident in the name, is a casein-derived morphine-like substance. In scientific terms it is a mu-opioid which attaches to mu-opioid receptors, of which there are many in humans and other animals.

The effects of this BCM7 are multiple. They depend on specific vulnerabilities in different people. But we know that it will always slow down the passage of food going through the intestinal system.  It messes up the normal mu-opioid receptors which control the wavelike movement of food called peristalsis. These digestive delays set the scene for digestive discomfort and exacerbate any tendencies for lactose and other carbohydrates to ferment.

We also know that BCM7 is inflammatory and that can set up all sorts of reactions in susceptible people, both in the intestines and beyond.

Professor Robert Cade from Florida – perhaps most famous as the inventor of Gatorade – established some 20 years ago that BCM7 was a respiratory depressant strongly implicated in sudden infant death syndrome in vulnerable babies. Professor Kost from Moscow showed that babies unable to quickly metabolise BCM7 were at risk of developmental delay. And for some 20 years there have been major concerns leading from Professor Elliott’s work in New Zealand that BCM7 can be a childhood trigger for Type 1 diabetes.  There is also evidence that BCM7 can cause arterial inflammation. All of this is published in top-level journals.

The challenge for farmers is that breeding for A2 takes time. It has to happen.


Disclosure of Interest: Keith Woodford consults internationally through his company AgriFood Systems Ltd for a range of dairy companies that hold diverse positions in relation to A2 milk.


*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. His articles are archived at http://keithwoodford.wordpress.com. You can contact him directly here.

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8 Comments

Sober and fascinating article, as always, Keith. It does take time for real science to prevail: plate tectonics (Wegener) took over half a century for the establishment animus to decay, and there are more contemporary issues still not 'settled'. Patience is a virtue in these circumstances....

Waymad,
I have made some effort over the years to investigate the journey of new ideas and new science. A starting point is Thomas Kuhn's 'The Structure of Scientific Revolutions'. An obvious early insight is to recognise the power of particular world views once established, and hence the difficulty of shifting those. Even in universities, new ideas are only welcomed if they don't threaten existing careers and existing power relationships. I also noted early on that most people who argue with prior science end up being destroyed by the difficulty of getting their views heard. But the wonderful thing about science is that truth always wins out in the end, even if that takes many decades.Along the way there can be many casualties.
KeithW

Indeed, Keith. It often takes funerals, for the new to be given room to breathe.....

Truth always wins. This one still makes me laugh.
https://www.theguardian.com/world/2007/mar/27/schoolsworldwide.foodanddrink

Good description of universities there.

Keith, A2 Milk was required by the Court in Australia to prove their health benefit claims in the A2 Milk/Lion legal dispute by Nov last year. But they settled out of Court before the deadline. If the science is as compelling as you allude to, why do A2 Milk settle out of court rather than take the opportunity to once and for all, prove their claims of health benefits?

I note you refer A2M having leader status due to market value of A2M fresh milk in Australia. What is the market share of A2M fresh milk in Australia? Who has leader status for market share in Australia? Has the supermarket limit on infant formula - Woolworth's is reinstating its 2 can limit - affected sales? https://www.news.com.au/finance/business/retail/baby-formula-stockpiling...

It is going to be interesting to revisit the Aussie A2 milk market in three years time, especially as Nestle is saying "We are going to win [market share] on the strength of the brand," he said.http://adf.farmonline.com.au/news/magazine/industry-news/general/nestle-...

A2 milk is an option for consumers (something Nestle acknowledges in the above article) just like organic, zero lactose and the various milk fat compositions. With Fonterra sourcing milk from 1 or 2 herds for its A2 Fresh milk and with more A2 herds available to it, it is unlikely to drive farmers to change to A2 while the market doesn't support it. Also my understanding is that Fonterra pays farmers the same or similar milk price for A2 milk as it does for is regular milk. But it like consumers, it does give farmers an option if they so choose to take it up.

Casual Observer,
Lots to answer there. But here is a start.
A2M sued Lion re misleading advertising, and Lion counter sued re issues of the science.
The out of court settlement has led to Lion desisting from its misleading advertising. Lion also withdrew its claims against the science. So A2M got everything it wanted.

The market share for A2 fresh milk in Australia is just over 10 percent by value. In a diverse market, that makes them number 1. In infant formula, a2 Platinum is easily the market leader at 32 percent.

The shortage of supply for infant formula in Australia appears to be because of further rapid increase in demand. We will all get better numbers on this on 20 November at the AGM.

Nestle does not have the supply capacity to get into A2 fresh milk in Australia. It does have the capacity to market A2 infant formula in Australia from imported product.

Fonterra's initial supply of A2 has indeed come from one or two herds. However, Fonterra is also talking to many of the big farmers about reorganising their herds. Let's see what emerges! You are correct, Fonterra has achieved its initial supply without paying a premium. The story behind that (and there is a story) could be interesting when it finally emerges.

Given the time it takes to converts herds, waiting until all is evident before starting the process could well be an illustration of having one's head in the sand. Once again, time will tell.

KeithW

Keith I was a early buyer of A2 many years ago when I lived in NZ & would find it hard to get as the dominant
milk brand took the supermarkets shelves resulting in A2 pretty much disappeared from the Auckland North Shore supermarkets I would go to
Anyone who knew what it was knew it was a world beater and yet the dominant milk held sway in the market
I come from outside the dairy community but boy have there been some mistakes made both in lack of consumer branded dairy products & failure to immediately throw full resources behind A2
Some wonder why Fonterra is rudderless ? It can’t see what’s in front of it

Northern Lights,
The failure to engage proactively with the A2 issue was arguably Fonterra's greatest mistake. I tried to get CEO Andrew Ferrier and Chair Henry Van der Heyden to engage on multiple occasions, but it was a losing battle. We talked, but I could not get them (or other directors) to seriously engage. An irony is that Fonterra had a 50 percent share in a key patent, held jointly with A2 Corporation (as it was the called). If only Fonterra had produced an A2 infant formula, the industry would now look very different.
Westland Dairy Co-op did make a commitment to A2 under Scott Eglinton in 2008, but then stepped away from that when Scott died and was replaced by Rod Quin. See https://www.interest.co.nz/rural-news/95976/keith-woodford-explains-why-...
KeithW