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A2 milk author breaks his silence

Listed company A2 Corporation issued a statement in November 2007 saying publicity from Professor Keith Woodford's book Devil in the Milk had resulted in "a significant increase in demand for a2 Milk".

"Our Australian joint venture company A2 Dairy Products Australia has reported an average 80% increase in sales across the 1100 stores stocking A2 Milk since the book was launched" A2C's ceo Anthony Lawler said at the time.

It was a turning point.

In the year to March 2007, the company had revenue of $27.6 million and made a $5.1 million loss.

Sales in the year to June 2012 have grown to $62.5 million and the company's after-tax net profit over that period was $4.4 million.

Lincoln University's Prof Woodford, an agricultural scientist, has been careful to keep his head down since – worried that people would think his views were based on commercially sensitive information.

However, he decided the company's recent announcements were "sufficiently momentous" for him to break his self-imposed ban.

Health claims

Firstly, though, what is A2 milk?

This milk does not contain the A1 milk protein which some link to serious illnesses.

Prof Woodford's book highlights research showing countries with a high intake of A1 milk have a high incidence of type 1 diabetes and heart disease.

Earlier this month, A2 Corporation has jumped to the NZX's main board following two years of share price growth – from below 10 cents to this week's mark of just over 50 cents.

The premium milk marketer also raised $20 million through a placement to institutional shareholders.

The private placement involved the three main shareholders selling 140 million existing shares and 40 million new shares being issued, all at then discounted price of 50 cents.

A2 shares (NZX: ATM) had been trading at 68 cents before the capital raising announcement and quickly dropped to the placement price.

The unusual nature of the new share structure announcement, and the sudden share price drop, seems to have prompted Prof Woodford to write.

"It would be interesting to hear the thinking behind the decision to price the shares at 50 cents," he says on his blog.

'Keen to cash up'

"My assumption is that some of the existing shareholders were very keen to cash up part of their existing investment, but the potential institutional investors needed for this volume of shares had signalled an unwillingness to pay the current market price.

"A stated benefit from the sale of shares by the three major existing shareholders has been to create more liquidity in the shares.

"This need for increased liquidity is unlikely to have been a pre-condition for listing on the NZX, but it may have been a pre-condition for being included in the NZX50 index."

Prof Woodford says promotion to the NZX50 will create additional investor interest in A2 Corp because some investment funds have a policy of investing in all top 50 companies.

The company's challenge, he says, is to repeat its Australian successes elsewhere, starting with the United Kingdom and, inevitably, China.

Having spent considerable time in China, Prof Woodford says it will be difficult to get market penetration with China's knowledgeable consumers unless the exact same product is available in New Zealand and Australia.

"The question remains as to whether the additional $20 million of cash that they now have in their war chest will be enough for such an initiative," he concludes.

"Establishing a brand in China is going to be expensive."

dwilliams@nbr.co.nz

More by David Williams

Comments and questions
5

I have followed the A2 milk story from Fonterra's formulative days, where they had the choice to run with the opportunity to participate in a switch of the national dairy heard to all a2 cows and choose, for their own reasons, not to do so. Since then Polish and Russian science has shown irrefutably that the nasty little peptide BCM7, present in a1 milk, does transmit through infants gut walls
directly into their bloodstream and so on into their brains. ref Proff Woodford's "The devil In the Milk."

A2 milk corporation has gained in strength significantly as its current share price will verify. Recently I again made enquiry of Fonterra as to what its latest position was in regards the A1 v A2 milk story and was retold the standard line, "that Fonterra had no reason to change from their stated position ie the science, around the potential impacts of BCM7 in infants brains remains unproven."

My question is this. In the light of the much publicised Fonterra's free milk to primary school initiative, who from the 16800 employees currently on their payroll
has the responsibility to re examine the science around this; and can Fonterra give an absolutely unequivocal undertaking that the a1 milk currently being supplied to our primary school kids is as safe as Fonterra can provide it?

Bearing in mind the significant percentage of our GDP that Fonterras business represents, surely an internal study has been done to show that continuing to supply a1 cows milk with its Beta Casa Morphine 7 peptide component is completely in the best interests of our children's health. I am not a scientist just an interested individual who suspects that Fonterra by remaining on its current course with this is not only missing an extraordinary opportunity for NZ but more significantly may be lining up for considerable future litigation exposure should the science show substantial contingent liability.which they as an entity should have been better prepared for.

Remember Fonterra was caught completely unawares in China with the melamine debacle which cost very substantial health issues, death among them as well as the loss of 100s of millions of dollars to NZ farmers plus damage to the NZ brand.

What we DO NOT need is another such debacle.

I understand Professor Bob Elliot played a major part in the discovery of A2 milk. Can you enlighten?

Yes Proff Elliot noticed the very high incidence of diabetes in
Pacific Island children raised in NZ v those raised in the Islands. The difference he thought might be diet and the amount of dairy product availble here. He rang the dairy board and asked was there a difference in types of milk? Answer yes there is difference in milk from A1 cows v that from A2 cows. Hence the revelation of this BCM7 material contained predominantly from A1 cows milk.
The Russiand and Polish science has produced results showing that some infants absorb this material through the gut wall and into the blood stream and on into their brains.
The question I ask of new Mums is "would you knowingly feed your babies with a product containing an opium derivative? Of course not is the reply.
Its in this area of knowlege I am seeking precise and accurate
answers from Fonterra who still supply a1 milk.
to date without much luck in reply.
As an aside it would seem that farmers have a % preference for A2 bull semen when I last sought the stats. So the science is getting the backing from the Fonterra shareholders perhaps in recognition of future possible market demands.
Its a shame that their commercial arm cannot be a more forthcoming. Either Fonterra knows and is ignoring same or just doesnt care. The opportunity to have had the whole national milk supply now being produced from a2 cows has been frittered.
Its kids health thats paramount here and that should never be compromised,ever.

If we're going to be too scared drink milk, what will be next? Bread, meat, potatoes...??

I believe the general NZ herd is shifting to A2 anyway. What proportion of NZ milk is A2? Will A2 Corp simply become redundant?