Food, dairy stocks fall on China tax fears

Shares in companies selling vitamins, long-life milk and infant formula to China have fallen sharply in the wake of China’s changed tax policy on cross-border e-commerce retail sales.

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But some companies don’t expect the changed tax policy to have a significant impact on their business.

Under changes made to China’s e-commerce tax laws on April 8, retail goods bought online will no longer be treated as personal postal goods but as imported goods, which are subject to tariffs, import VAT and consumption tax.

The tax policy aims to create a level playing field for e-commerce platforms and traditional retailers and importers.

The change has hurt the shares of companies selling consumer-focused goods to China such as vitamins supplier Blackmores, milk supplier Murray Goulburn, children’s food and formula supplier Bellamy’s Australia, dairy producer Bega Cheese, and Freedom Foods.

Blackmores fell 6.76 per cent on Tuesday, Murray Goulburn’s unit trust lost 8.22 per cent, Bellamy’s dropped 10.75 per cent, Bega retreated 3.32 per cent, and Freedom Foods weakened 4.23 per cent.

Conversely, China Dairy Corporation, which is listed on the Australian share market but operates within China, surged 18.57 per cent.

IG market strategist Evan Lucas said the changes to the Chinese tax regime could hurt companies making a lot of sales through cross-border e-commerce channels.

“The big issue that was facing Bellamy’s, Bega Cheese, Blackmores, etcetera was this sort of `grey’ channel where products of Australia are bought on market and then sold into China – there was always a possibility that they (Chinese authorities) could crack down on it,” Mr Lucas said.

“But it’s not clear yet who will be affected and who isn’t.”

Murray Goulburn said on Tuesday that it expects China to clarify the tax changes – which are new and likely to evolve – in coming weeks.

“Based on the information currently available to us, we do not believe there will be any material impact to our business, and we will keep the market informed in the event that this changes,” Murray Goulburn said in a statement.

Murray Goulburn said it had known of China’s planned regulatory changes for some time, and had prepared, with more traditional off-line distribution arrangements and domestic on-line channels in China.

The company noted that its Devondale consumer milk powder and UHT milk had been temporarily removed from some sites for immediate sale.

Freedom Foods, which sells various food and dairy products to China through retail outlets and online channels, said that under the changes, UHT milk products and adult milk powder had been excluded from the list of products allowed to enter China’s cross-border free trade zones.

“The changes announced have no impact on the sale of UHT milk through general trade e-commerce and traditional retail distribution channels in China,” Freedom Foods said.

Freedom said its UHT milk sales in China were mainly through traditional retail channels.

The company expects that distribution of its “So Natural” UHT milk brand, which is sold via cross-border e-commerce channels, will switch to general trade e-commerce channels with the major online retailers in China.

Freedom also said the cost of Australian UHT milk sold in China would gradually come down as China’s tariffs were cut under the Australian-China Free Trade Agreement.