Dairy sales to double by 2020

Fonterra expects its already sizeable dairy products sales volume in China to double by 2020, according to presentations made in China by senior company managers.
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Chief executive Theo Spierings and chief financial officer Lukas Paravicini were in China to present to customers, investors and possible partners, to view progress on Fonterra’s dairy farms and meet prospective infant formula partner Beingmate.

They joined Fonterra’s Greater China president Johan Priem, International Farming Ventures managing director Alan van der Nagel and other resident senior executives to provide a comprehensive view of where Fonterra was headed in China with both imported and domestic dairy products.

The headline prediction was that Fonterra’s sale volume in China would double from 4 billion litres of liquid milk equivalent in financial year 2013-14 to 8b litres in 2020.

However, the mix of that volume would change considerably, from 80% NZ-sourced ingredients now (dairy commodities and formula blends) to less than 50% in 2020.

Rapid growth was predicted in the market shares of branded and foodservice products, milk production off the China farms and sales of non-NZ ingredients sourced from Australia and Europe.

Consumer and food service products were predicted to grow from 17% of China sales to 37%.

Five farm hubs in China were expected to produce 1b litres annually by 2020, the output of 100,000 cows housed indoors.

At that time the farms would be contributing one-eighth of total China trade for Fonterra and non-NZ ingredients would be contributing a similar tonnage.

Fonterra was now looking for more partners in the farms, having signed with US infant formula brand owner Abbott for the development of one hub of five farms in Henan province.

The presentation said in 2013-14 China took 31% of all Fonterra’s NZ milk collection, in the form of ingredients such as whole milk powder, anhydrous milk fat and butter.

Fonterra supplied 42% of all China’s imported dairy ingredients in 2013, followed by 23% from North America and 17% from Europe.

Foodservice and consumer-ready sales boosted Fonterra’s total revenue from China to $5.5b, which was 25% of the $22b turnover.

Because China’s production growth of 3% annually could not keep up with its consumption growth of 4%, imports would continue to grow, from about 25% of consumption now to 28% in 2020.

Paravicini said about a third of current capital expenditure approval was targeted to China and other Asian markets, including $250m for the China farms and $300m for consumer and foodservice plants in NZ.

Fonterra Greater China and India employed more than 1400 people including the farm staff.

Priem identified the four largest dairy categories in China and the market shares in each category for domestic companies like Mengnui, Yili, Wahaha, Want Want, and Bright.

In only one category, infant formula, did Swiss-based Nestle and US-based Mead Johnson have sizeable shares.

The other three categories were flavoured milk drinks, yoghurts and UHT products.

Appropriately, given that Fonterra’s Waitoa UHT plant had just been opened, Priem mentioned premium UHT milk accounted for 40% of that total segment by value.

Fonterra intended to pack premium NZ-sourced UHT milk at Waitoa for China while developing an in-market UHT plant for regular grades in future, on its own or with a partner.

He listed the partnerships and joint ventures announced over the past decade between multinational dairy companies and Chinese companies, including Fonterra’s with Beingmate.

The six key consumer trends driving the future for dairying were:

  • Increasing disposable incomes.
  • Children get only the very best.
  • Aging population.
  • The government pushing consumption of dairy products.
  • Food safety concerns.
  • The growing importance of e-commerce and digital platforms.

Newly appointed van der Nagel said Fonterra farms produced 110m litres of milk last financial year and that would double to 225m litres during the current financial year.

Fonterra cows produced milk with higher fat and protein content than other modern China dairies and lower bacterial and somatic cell counts.

He expected milk yield to increase to 9500 litres/cow this financial year, compared with 8300 last year and 8200 average in the modern China dairies.

Capital invested in the farms so far totalled $348m with $250m to follow this financial year.

The business was capital hungry, he warned, and the risks included competition for land, environmental and sustainability challenges, along with animal welfare, disease and biosecurity risks.

Source: Agrihq

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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