Infant formula producer Bubs Australia (ASX: BUB) has secured a minimum 6 million litres of goats milk per year on top of its current supplies, following a supply agreement signed today with Central Dairy Goats of New Zealand.
The initial five-year agreement guarantees Bubs a minimum supply volume of 2.2 million litres through to May 2019 and 6.2 million litres the following year.
The milk will be processed to powder at a New Zealand facility, ready for export to Australia where it will undergo further processing to produce Bubs’ range of CapriLac adult milk powders.
In a world first, Bubs’ stock of Australian goats milk will now be solely used to produce its infant formula range.
The supply agreement has provisions to vary offtake and re-sell additional supply, and includes traceability records for all product supplied to Bubs Australia.
It also features a 12-month termination clause which can be exercised by either company.
Central Dairy Goats represents a group of dairy farmers on New Zealand’s North Island who own a combined 5200 milking goats.
Bubs chief executive officer Kristy Carr said the supply agreement between both groups is a boost for the company she founded.
“Combined with our existing milk sources, we now have secure access to the fresh milk supply from 30,000 goats across Australia and New Zealand, or approximately 20 million litres,” she said.
“This will allow us to fulfill our increasing growth trajectory and further reinforce our farm-gate-to-finished-product provenance story.”
Bubs is Australia’s only vertically-integrated producer of goat milk infant formula, with exclusive access to fresh milk at a fixed price from 24,000 goats in Australia and New Zealand.
The company’s business strategy includes a plan to grow the combined herd to 50,000 by 2020.
Bubs manufactures products under the CapriLac, Coach House Dairy and Bubs Organic brands, which retail through supermarkets and pharmacies in Australia, and are exported to China, South East Asia, and the Middle East.
This year, Bubs has made significant inroads to China’s fast-growing infant formula and food markets.
In February, the company added Chinese online shopping platform JD.com International Limited to its sales and distribution network, allowing Bubs products to be sold direct to Chinese consumers.
By June, the company had made moves to further expand its Chinese footprint when it entered into a manufacturing agreement with Australia Deloraine Dairy which will also allow it to eventually obtain business-critical China FDA registration.
At midday, shares in Bubs Australia were trading 3.41% higher at $0.455.