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Investing in White Gold!
Article courtesy of http://capitalistexploits.at/
China circa 2008… six babies die from severe kidney damage while another 300,000 suffer kidney stones. As it turns out, melamine isn’t meant to be in infant milk formula! The result was a few Chinese businessmen taken out back and shot, literally… and a nation that, for good reason, doesn’t trust the dairy industry (for starters…).
Since then China has “enjoyed” multiple infant formula scandals, including formula containing aflatoxin, a known carcinogen, and a scandal involving milk powder containing mercury.
Outside of infant formula, but remaining on the topic of food found on Chinese supermarket shelves, it’s also possible to buy “glow in the dark” meat. Turns out bacteria-laden pork does that. I figure there may be a market serving it in night clubs, instead of glow rods you could have “glow kebabs” – call it theme food.
Not to be outdone by the Europeans, who were recently caught passing off horse meat as beef, below I present a list of culinary delights to be found in the middle kingdom:
- Rice containing cadmium. A heavy metal which destroys your internal organs and causes cancer. Not a great ingredient in food methinks.
- Rat, Fox and Mink meat sold as Lamb. Come on…let’s face it, most any meat deep fried and doused in sufficient amounts of soy sauce tastes pretty much the same anyway.
- Dead, diseased pigs sold as food. This was stylishly referred to as “swine gate”. Turns out the pseudo-rabies virus in the pigs doesn’t gel well with humans.
- Deep fried with a bit hoisin sauce and it'll be alright, no?
In short, buying food off a supermarket shelf in China is a high risk adventure sport. What the average man may risk on his own behalf, he is far less likely to risk on his precious spawn. Those reading this article who have loved ones, especially children will likely agree with me when I say I would NEVER let my kid so much as look at any infant formula originating out of China. Even if there is a statistically small chance of poisoning, the ultimate penalty is death. Yeah, thanks, but no thanks!
It appears many Chinese parents feel the same way, which has led to mainland Chinese buying infant formula in bulk from Hong Kong, Europe, the US, and Australasia, thereby prompting a rationing in some countries by companies such as Danone and Mead Johnson Nutrition Co.
In a move reminiscent of US anti-drug trafficking efforts, the Chinese Government, exhibiting the intellectual capacity of a stuffed bear, have since restricted imports to just 2 cans per person. This has opened up a massive smuggling opportunity. You know the world is a screwed up place when transporting something so innocuous as infant formula is a punishable crime!
Hong Kong border officials last year arrested more people for smuggling baby infant formula than they did for heroin!
Markups now exceed 100% above retail prices in Europe, Hong Kong, Australia and New Zealand. When you consider I’m talking about the retail price and not the wholesale price, those of you who are not asleep, stoned, or dim, will quickly realise the obscene profits that smuggling generates. The average Chinese newborn consumes 22,630 grams of formula in their first 6 months of life, equating to a US$1,544 retail value. Demand is overwhelming supply right now.
When a market accepts and trusts people whom they don’t know from Adam, selling infant formula out of their garage, then you know you have a market ripe with opportunity. Done properly the potential exists to create a powerful “trusted brand”.
At present 70% of the imported infant formula market is controlled by foreign brands, with most of the independent brands run by small “Mom and Pop” companies from NZ and Holland, who as far as our analysis shows are successful mainly due to their product coming from “safe” jurisdictions. None we’ve found have strong marketing or endorsement programs, or are taking advantage of this opportunity in a well thought out manner.
Below is a graphic representation of the major players in this $12.5 billion sector:
Mark and I, along with our CPAN members have recently completed a “friends and family” seed financing round in a company seeking to change this.
Using a strong marketing platform they will seek to establish themselves as a niche, high-end supplier of infant formula to the China market. I’m here in NZ, and I just met with the CEO who is sourcing supply from a boutique New Zealand dairy company. He commented to me, “you know I wouldn’t know what to do here in NZ, all the problems seem to be solved.” This is exactly what excites us about emerging and frontier markets. There is NO shortage of problems, and the greatest profits always go to those who solve problems.
We believe this company is in the right market, has a solid strategy which they are systematically executing on, and most importantly they have a very well-established team of professionals with solid track records of operating in China. Those factors, combined with a compelling valuation, are some of the reasons we got involved.
As mentioned on our blog numerous times, we ALWAYS bet on talented, proven management first and foremost. By doing so we think the odds are stacked more in our favour than otherwise. Executed well, the rewards in this sector promise to be substantial. What is a sure bet is that someone in this space is going to make a fortune.
We have placed our bet, now let’s see how it plays out. Time will tell, and nothing in private equity is ever a sure thing. However, I’m always cognizant of the deals which have vaulted my own portfolio, and most have had the ingredients of this one. We’ll likely introduce readers again to the company in question once they hit cash flow, but prior to going public.
- Chris
“Even if there is only a 1% chance that Chinese formula is not safe, I don’t want to be that 1%.” – a “Mrs Li” (a Chinese mother)
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Cadmium, schmadmium.
Actually there was a panic in Canada in 1994 when they discovered why Canadian wheat is (relatively) high in cadmium. Europe was threatening to restrict entry of Canadian wheat into the market (by lowering the allowable cadmium levels in imported wheat). Luckily Canada started siezing Spanish trawlers and the problem disappeared.
wtf is Human Yahua Seeds?
I love it when the Wall Street psychopaths appear on CNBC and proclaim China to be the model that the US should move toward.
"Glow kabob". Made my day.
So.... how do I know this expensive "imported" infant formula I just bought isn't counterfeit?
This is why all the purchasers demand receipts.
I bet there is a booming market for empty cans of Mead Johnson powder.
The way things are going it may well end up being a no-child policy in China.
Then again, do we in the West have any guarantees against Monsanto, asbestos, additives, chemicals as well as the overload of salt, sugar and fat?
We are now well and truly on the road to breeding a world full of babies with built in time bombs.
Yes. There are a number of companies sniffing around. I recently put together a proposal for Yashili International's new milk processing plant in NZ announced recently (acting for the land developer). They cannot get going fast enough and the plant seems to get bigger every month.
“Even if there is only a 1% chance that the stock market is not safe, I don’t want to be that 1%.”
I'm here in HK and I can assure you that this company you are referring to is not the only company with this idea so you had better hurry up.
Yeah, well I can make milk.
Well, Boris can piss vodka!
I liked the picture of the chinese baby in the toilet pipe today; he's alive and being fed "formula". He might have survived being flushed down the toilet pipe, but probably not the "formula". Ha, ha. what a world.
I didn't realize that they actually had any toilet pipes in China --- I thought the sidewalks and roadsides sufficed for the deposition of nightsoil.
Alas, alas, three flushed babies alas, just have to bear with it.
Is it not possible that mothers would breast-feed their infants in China? Wouldn't that create a pressure on infant formula to be better than Nature's own? Are Chinese women and mothers stupid?
Aren't there labs in China that test products? How do food quality scandals and adulteration issues get so far along in China?
Isn't pure food a high level concern in China? Do the operative leaders just ignore this stuff??
Not that Canada is any smarter or better, is China that retrograde?
before you say China is so 'retrograde', lets review the practices in the USA.
1. Pink slime. Meat that is typically unfit for human consumption, is ground up, treated with AMMONIA to kill bacteria, and repackaged as ground beef.
2. GMO wheat that has not been tested long term on humans is in the wild. Only found by chance, by an inquisitive farmer. Question is what the hell else is out there?
3. Mutiple recalls of beef, chicken, seafood and greens over the last few years
4. the amount of antibiotics put in animal feed is beyond ridiculous
5. Slaughterhouses are closed down due to unsafe practices. http://www.pasadenastarnews.com/california/ci_21359789/slaughterhouse-shut-down
the list could go on and on.
Sure we're not 'as bad as' China, but don't kid yourself that the food supply is that safe here either. (yes yes I know you referred to Canada, I doubt the practices are any different).
Now consider the options:
1. breastfeeding, until recently was looked down upon in the US.
2. the USDA currently cracks down on 'raw milk' farmers. One day in the near future, all lactating mothers will be raided for serving 'raw unpasteurized milk' to 'innocent infants'.
The problem with this theory, it turns out, is that mothers milk in Chian has more lead and other toxins in it than the tainted formula thanks to the toxic garbage the mother is forced to dine on.
China will burn GMO's coming into the country because they're concerned about food quality
But they'll poison their own food and knowingly feed it to their people. When they get caught they shoot a few to silence the angry masses.
I read an article a while back where a Chinese farmer's whole field had been flooded with some toxic crap. The pictures made his field look like the salt flats ourside SLC. He said he was left no choice but to harvest it and sell it to people or go bankrupt. Of course he chose the former.
Saving face > Poisoning People
can you make infamil from lead?
Saw this company at the money show in Florida;
YaSheng GroupTicker: HERB
The down and dirty;
http://finance.yahoo.com/q/is?s=herb
Comments?
You went to the money show? Down arrow...
In China, food is like gold.
Can't eat it.
You entire premise rests on the notion that there is increasing demand for a non-fungible good. Trouble is, new mothers create a product far superior to formula for free, and it replenishes itself for anywhere from 1-3 years. Formula is only a consumer staple so long as it is affordable, but once it becomes unaffordable it becomes a luxary with a free replacement.
Only 28% of the 52M children under the age of 5 are breast fed in China.
You are what you eat and in the case of a mother, so is your milk.
Already going down here in 'Murica.
Nice Monsanto GMO crud, pink slime, Roundup cereal, antibiotic rich irrigation water, listeria melons, killer lettuce, biological warfare peanut butter, etc.
Bare minimum, buy organic.
Best ever solution ?
Grow your own food, or grow your own tumors.
Even food that isn't toxic, is it really food? Wtf is a cheeze-it? Many "health" foods are by products of food manufacture. Whey protein, cotton seed oil, skim milk.
Weapon of Mass Consumption - product of Grocery Industrial Complex.
Lets hope the Chinese can run Smithfield Foods without killing people.
They'll be able to run all kinds of good roadkill through the Smithfield brand before its trashed.
There's alot of road kill here in VA too. But since the stock jumped up 28% in ONE DAY then the .gov started getting in, it's due for a correction.
Cream of some young guy, wisssa polk flava??
Soyrent green.
Made me laugh.
More parangongs of 'Chinese' Citizenism eternal nature run amok, blobbing-up dietary toxins to be consumptionalized by unknowing 'chinese' consumers. Somehow that is something, very crusty, very much cornicopious.
But as they say, a river pig in the hand is worth two roadside turds in the bushes.
Welcome to the shady world of 'Chinese' Citizenism food.
It's a tasty but risky world of delights, you'll see.
I think the trade of the century will be investing in a pharma that creates an anti-carcinogen drug that staves off cancer for the Chinese.
They clearly don't give a shit about their peoples.
Diabetes too.
in my country, women were determined to be depriving the government of tax revenue when they fed breast milk to their infants. plus, they were depriving vendors of funding because they were not buying milkproduct.
the solution was as simple as it was obvious: make the mothers pay a tax for "virtually buying" milkproduct whenever they breast-feed their infants.
it works out very well! everyone is happy!
Russia is solve problem - tax income of wet nurse.