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Fonterra says India a major ingredients opportunity

Article – BusinessDesk

Fonterra says India remains a massive opportunity for the New Zealand cooperative once it inevitably shifts to being a dairy importer.Fonterra says India remains a massive opportunity for the New Zealand cooperative once it inevitably shifts to being a dairy importer.

India is currently balanced in terms of supply and demand, said Teh-han Chow, who heads up Fonterra’s ingredients business into China and South and East Asia.

“As it continues to grow and production doesn’t keep pace there will eventually be a need for dairy imports into India. The question mark is when,” Teh-han told BusinessDesk at the NZX Global Dairy Seminar in Singapore last week. “That’s the million dollar question.”

India’s spending on consumption will rise to around US$4 trillion by 2025 according to different estimates and its normal year-on-year expenditure growth is already double the global average, he said.

“The numbers are huge. The country is huge. It is quite a large opportunity,” he said.

While India doesn’t currently need to import dairy, Teh-han said consumers are actively seeking protein, due to religious and dietary restrictions, and “dairy protein is a good alternative”.

Fonterra doesn’t export ingredients such whole milk powder to India. Rather demand is driven by products like whey, frequently used in place of eggs.

According to Te-han, all signs indicate growing demand across developing Asian economies that represent about 30 percent of Fonterra’s total business. That includes not only India but also China.

“We are seeing good, solid demand. We continue to see growth in most of our markets,” he said.

The US-China trade war did create headwinds, Teh-han said. Higher input prices may affect Chinese milk production as imported US feed gets hit by tariffs.

“Trade wars are never good. My own personal view is that in the end, it is the consumer who pays for the trade war,” he said.

The impact on Fonterra, meanwhile, is two-fold.

On one hand, it puts Fonterra at an advantage as certain US products lose their competitiveness. “That means we sell more and find other customers that were buying US product who can now buy New Zealand products,” Teh-han said.

However, “US product that was going into China now needs to go somewhere else.That comes into South East Asia, where we see a much more competitive market. At the end of the day, it is not good for the consumer.”

Overall, he said urbanisation, a young, growing middle class, digitisation and globalisation are the four major trends spurring demand in the 23 markets he covers.

China alone sees roughly 13 million people move to urban locations each year.

“As you move up the ladder, you have a greater affinity for dairy products,” he said. Also, “the demographics are great. We have young populations across most of Asia that are willing to take on new products,” he said.

Teh-han pointed to cheese as a key example. Comsumption is growing at double-digit rates, largely driven by products merging eastern and western tastes, such as cream cheese in coffee or cheese-flavoured yoghurt.

“A lot of the signals are quite positive and New Zealand is just really well placed,” given its clean, green image, he said.

That demand will eventually outstrip New Zealand’s ability to keep up, Teh-han said. Production in New Zealand will be “flat or slightly increasing” over the longer term.

In the short term, he sees a similar pattern across all the major dairy exporting regions, with a modest lift this year.

“The net exportable surplus of milk will be roughly constant, so we will be in a relatively well-balanced supply and demand scenario,” he said.

However, “global consumption is growing at a much faster pace than that,” he said.

China will likely see domestic milk collection increase by around 1.7 percent but it will continue to see 4.4 percent in dairy import growth. “Generally, consumption will continue to increase at a healthy rate,” he said.

“We see protein growth as something that consumers are taking on,” in particular in the health and wellness space, he said. As a result, Fonterra is seeking protein beyond its New Zealand milk pools.

The New Zealand dairy company is also examining blended milk powders that are cheaper than the base commodity whole milk powder. Those alternatives offer a more affordable price point for consumers in developing countries or where income levels are low, he said.

“That expands it. You take a given amount of milk and you can actually expand the amount of product you are able to supply to consumers,” he said.

Within China, Fonterra uses fresh milk to supply small stores that guarantee next-hour delivery as digitisation takes on increasing importance, he said.

Fonterra is in the process of taking stock of its business, prioritising a return on capital and aiming to set realistic forecasts as it looks to turn the business around after a disappointing full-year loss. It has embarked on a process to re-evaluate all investments, major assets and partnerships to ensure they still meet the cooperative’s needs.

It is expected to update shareholders at the firm’s annual meeting on Nov. 8.

Content Sourced from scoop.co.nz
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