The A2 Milk Company Ltd (ASX: A2M) share price is turning sour today. At the time of writing, shares in the New Zealand dairy company are trading for $8.23 – down 0.72%. By comparison, the S&P/ASX 200 Index (ASX: XJO) is 0.3% higher.
Over the last year, the A2 Milk share price has fallen by an astounding 53%.
While daily share price movements can be influenced by a myriad of factors, one possible reason behind today’s A2 Milk doldrums could be recent developments surrounding international student arrivals into Australia.
Let’s take a closer look at recent reports and why they could be negatively impacting the A2 Milk share price.
Australia may not see international students return soon
According to a report in yesterday’s The Australian, as a result of Australia’s delayed vaccine rollout for COVID-19, the country appears unlikely to reach herd immunity by the end of 2021 and therefore not open its borders to international students. Just last week, Prime Minister Scott Morrison said a general border opening was not on the cards in the near term.
There were hopes international students could come back to Australia before 2022, and before the borders were open to all. The New South Wales Government proposed a program to allow international students to return to the country and isolate themselves separately from the hotel quarantine program.
The state government stressed international students are “vital” for the “education sector and the economy more broadly” and began seeking external expressions of interest for the management of international student arrivals, as reported by The Guardian.
Ongoing issues with Australia’s vaccine rollout may have put those hopes on ice.
What does this have to do with the A2 Milk share price?
Before the pandemic, the biggest ‘cash cow’ for A2 Milk was its infant formula. In FY19, infant formula compromised 81.5% of all revenue. The largest market for A2 Milk’s infant formula was the daigou market.
Daigou is a term that refers to a market of customers who buy products overseas (such as in Australia) and then sell and ship them to end-users in China. These entrepreneurs are usually, but not always, from the People’s Republic. Popular daigou products in Australia include Blackmores Limited (ASX: BKL) vitamins and the aforementioned infant formula.
ASX investors do not expect the international border to open for some time. An analysis by Deloitte Access Economics says the border will not open fully until at least 2024. There was hope, however, an exception could be made for international students.
The reason the A2 Milk share price could be impacted by the return of international students to Australia is that a large portion of these students come from mainland China.
According to the Department of Education, in 2019 (pre-pandemic) 212,000 international students in Australia were from China, representing the single largest nationality bloc. In fact, this number was greater than those of the next three nationalities combined.
For further context, in FY19, 1.4 million tourists arrived in Australia from China. While the Chinese international student number is obviously much smaller, it still represents around one-sixth of total Chinese visitors to Australia.
The return of international students has the potential to reactivate the daigou channel in Australia. If the latest reports are to be believed, however, international student arrivals are still some way off. This could be partially responsible for the continued slump in the A2 Milk share price in the short term.