Australia Deloraine Dairy is one of 15 facilities in Australia to have been granted a CNCA (Certification and Accreditation Administration of the People's Republic of China) licence, allowing it to produce infant formula products permitted for import to China, in accordance with CFDA regulation.
Bubs chairman Dennis Lin said this would mean more Bubs infant formula products in Mother and Baby stores in China, therefore also satisfying Chinese demand for goat milk-based infant formula.
In a statement to ASX, he said, "There is an increasing demand for goat milk-based infant formula in China, especially in Mother and Baby stores.
"The manufacturing agreement will facilitate our CFDA registration and provide a defined pathway to maximising Bubs' access to 80,000 stores aligned with our partner QianJiaWanPu, China's largest nationwide distributor of infant formula."
The agreement entails Bubs purchasing a minimum of 500,000 tins of formula in the first year after registration, followed by annual increments that will eventually reach 1.5 million tins in the fifth year. The firm will also pay the manufacturing facility a A$1m security deposit in instalments upon reaching certain milestones; the amount will be refunded at the end of the term.
The agreement will also ensure that Bubs' infant formula will be produced in a facility under in-house expertise, in line with the company's in-house compliance measures, as well as the standards established by the Dairy Food Safety Victoria (DFSV) and Department of Agriculture.
This comes at the same time as Bubs' agreement with Alibaba Group to open a flagship store on Tmall Global, where the company's entire range of infant formula, organic baby food, snacks and cereals will be available.
Bubs has stated that it expects its global merchandise value to exceed A$1m within the first year of operations.
The two agreements present a lucrative opportunity for Bubs, especially since Mother and Baby products comprise the second largest category on Alibaba. The platform saw an 8.8% rise in cross-border sales of infant formula in 2017, led by organics, as well as specialised formula and goat milk products.
Bubs' founder and MD Kristy Carr said in an ASX statement: "As the only Australian vertically integrated producer of goat milk infant formula, we will be in a unique position to offer Chinese parents comfort that we have complete control over the quality and scalability of our supply chain back to the farm gate."
Bubs has been expanding steadily over the past year, with China as its key overseas market.
Last November, the firm bought NuLac Foods as part of its strategy to expand its presence as a leading infant and adult goat milk manufacturer in Australia and China.
More recently, it signed an agreement with China-based supply chain and service provider New Times Asia, which will significantly increase its distribution in China.
This came after a series of deals with JD.com and Chinese distributor QianJiaWanPu; the latter supplies 80,000 Mother and Baby stores in China, essentially giving Bubs access to 90% of Mother and Baby outlets in the country.