Fonterra's reach in China to expand

Fonterra CEO Theo Spierings' optimism about the Chinese market is contagious. By Fran O'Sullivan.
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«I think that China will evolve very quickly and take global leadership more and more and more, especially because the West doesn’t really know where to go.»
Spierings’ comments came on the eve of Premier Li Keqiang’s visit to New Zealand where plans to upgrade the China-New Zealand bilateral FTA were expected to be launched.
«I do believe that for both countries there’s a clear win-win in an upgrade of the trade agreement, especially with what’s happening around us,» says Spierings. «I think we are mutual friends and I actually have high hopes and expectations.»
Fonterra is keen to see the FTA upgrade result in the removal of the safeguards that currently constrain the revenue it receives from its commodity exports to China.
The irony is not lost on Spierings that China is pressing ahead with upgrading its New Zealand FTA at a time when Donald Trump has abandoned the TPP; an agreement which would have allowed Fonterra to expand its business with the United States.
«I’m an optimist for what we can control,» says Spierings.
And in an uncertain world, keeping on top of Fonterra’s China strategy is important.
Like other major exporting companies, Fonterra has had to fulfil certain requirements from the Chinese Government which basically give it license to operate at scale in the massive Chinese dairy market.
Beijing had said it wanted Fonterra to invest in high-quality, reliable, and safe farming; invest in downstream businesses; and in partnerships.
Spierings says the upshot is that Fonterra has done all three. «For me it’s an integrated strategy,» he says. «We have world-class brands and partnerships all across the business.»
Eighteen months ago Fonterra – like other global dairy competitors – was feeling the effects of dampened demand for dairy commodities in China. The Chinese demand curve has recovered to a certain extent, but dairy commodity prices have yet to reach the heady heights of the ‘White Gold Rush’.
«It is of course less growth than what it was, but that double-digit growth will never come back,» says Spierings. «But I think if we can keep it in the bracket of, say 3, 4 to 6 per cent, that’s beautiful growth still. And if we can have it on a consistent basis, that’s fine.»
Spierings stresses he is referring to volume growth. «But what is interesting to me is the very rapid change of the sales channels … that’s where the opportunities are.»
Capturing the opportunities is vital, he says. «Of course there was a shift from offline to online, but now already in online you see that it goes from catalogue buying to virtual reality shopping and all sorts of features and technologies being used.»
Since 2013, Fonterra’s milk pools produced from its own farms in China have grown significantly.
The Anchor brand has also expanded its reach and Fonterra has increased its market share markedly in the highly competitive Chinese consumer and food service segment.
Says Spierings: «In food service we are so advanced in our model, our product and IP, and our relationship with the channels and trade, that business goes from strength to strength.»
Regulations intended to improve the oversight and safety of infant formula products came into play in 2016. But the impact will be felt more keenly this year.
«What is going to happen after the regulation kicks in is a real unknown,» explains Spierings. «But the estimation is that 35-40 per cent of market share there will become available.
«It’s estimated that there are currently almost 2000 brands and labels in baby food in China alone. And with the new regulations that will drop to 200.
«There’s a whole lot of labels and brands that will disappear, and that market share will be up for grabs.»
Fonterra’s China strategy has evolved. Its ‘Test, Build, and Learn’ phase is well behind it, and, ‘Scale and Efficiency’ has been implemented. Now the firm is turning its attention to generating higher-value products downstream.
A Bank of China (NZ) facility has been put in place to fund growth. Fonterra has already grown from having its food service business in seven cities to 76 cities, for example, and there’s more to come.
«We have rapid expansion here. The Anchor retail business we’re still investing in, so we’re still on cash negative basis,» says Spierings. «Of course we have the Beingmate deal in there, we have farms. So there’s a lot of things we need the facility for.
«In food service we are going pedal to the metal; in ingredients, we are fighting for market share.»
Perhaps the most visible manifestation of Fonterra’s integrated strategy in China will be the development of a new factory.
«We are going to make a buy or build decision pretty quickly,» says Spierings.
«They have always pushed us for a factory (in China), but I said I’m not going to build a factory if we don’t have a market position.
«You need to have a market position before you build some stainless steel otherwise you’re not going to be utilised.»
Spierings says Fonterra now has sufficient business to take that step.
«The most important thing is that we get that stainless steel box to connect milk produced to our branded business.»
Another tangible example of the shift to high-value downstream products is the unprecedented popularity of the company’s new macchiato tea product.
«This innovation alone, people are queuing up for three, four hours in front of the shops. We’re completely out of stock.»
 
Source: NZHerald
Link: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11826469
 

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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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