Infant formula shortage (PRGO)
Reckitt Benckiser, the manufacturer of Enfamil, issued a report that indicated shortages of baby formula are expected to last at least until the spring. Shortages are most acute for specialty formulas like hypoallergenic. According to IRI 12.5% of baby formula powders nationwide are out of stock ten months after Abbott shut down its plant starting the shortage. According to the U.S. Census one-third of parents said they had difficulties finding formula in November. Last week the nonprofit Reagan Udall Foundation released a critical report accusing the FDA of mishandling the shortage and urging an overhaul of its food safety program to prevent widespread shortages.
Perrigo was not able to keep up with the demand for its infant formula and running its plants at full production led to higher costs. Perrigo recently purchased Nestle’s Gateway infant formula plant. The purchase and subsequent expansion will enable Perrigo to meet all its own production needs. The $170M acquisition and capex for the plant will contribute $50M in expected operating profit beginning in Q4. Despite the surge in demand in 2022, Perrigo’s infant formula business will grow ~75% in 2023.
Excess down under (TWE-ASX)
Australia has 2.3 billion liters or 256 million cases of wine in inventory, which is 25% above the industry’s 10-year average. Without exports, the inventory represents two years of consumption. The weighted average price for Australian wines has fallen 40% since November 2020.
The Australian wine industry has struggled with excess supply since China raised tariffs on Australian wine in political retaliation for calling for COVID-19 origination inquiries. Wine Australia said shipments in the year ended September were down 92%. Australian growers hope the two countries will settle their differences, but wine consumption in China is at record lows. Russia has also been a market that in the past could absorb excess inventories, but it is out of the market due to sanctions. The Australian industry needs to reduce capacity. Exports can not be the only answer for weak demand and excess supply.
Oatbox startup (STKL)
Oatbox, a Canadian startup oat product company, announced the closing of a C$7.1M financing round from financial partners Desjardins Group, the Government of Quebec, and Investissement Quebec and Canada Economic Development for Quebec regions. The funding will finalize the construction of the company’s own oat-based manufacturing facility. Oatbox will develop a wide range of plant-based oat products made from Canadian oats. The company plans to sell excess production capacity in Eastern Canada or the Northeastern U.S. Oatbox said there is a shortage of quality oat-base on the market that is processed locally and transported over shorter distances. The demand for oat-base used in oat milk or other products exceeds demand. SunOpta is completing the construction of a $100M plant in Texas. It is on a vastly different scale than Oatbox.
