Eight weeks of embracing the size and complexity of the China market for dairy products has left Nathan Sheppard excited about the possibilities for exporting fresh pasteurised New Zealand milk into the region.
“It’s the most alien world you could imagine in every way – at the same time awesome but very frustrating,” the Lincoln University masters student said of China.
“But the size and complexity can also mean opportunity.”
Fresh milk is the second-fastest growing category in China for dairy products with 10% year-on-year growth since 2011, behind drinking yoghurt, and the companies who have entered the market so far are making great returns of about $15/litre at retail. However, after spending eight weeks in the country on a Prime Minister’s Scholarship, Sheppard said it wasn’t for the faint-hearted.
The Chinese market was incredibly complex and segmented, requiring 300 different market strategies that would work on a micro-market level with individual cities, he said.
While it was considered very desirable and healthy in China to feed children and old people fresh pasteurised milk from grass-fed cows, Sheppard said the reality of lack of cold-chain logistics across much of the country constrains the market to the eastern seaboard, but there were plenty of potential wealthy clients in the mammoth cities that make up the region.
“The product is quite vulnerable to a food safety scare in terms of growth of the market, but at the end of the day fresh is perceived as healthier – it’s more desirable to the consumer.”
The companies who had been successful in the market so far had internalised most of the supply chain and managed the risk of customs clearance holding up the product.
“With a fresh product the customs clearance is very important, because fresh milk has a shelf life of only 14 days, so if it’s not there within 10 days the consumer is definitely discounting it.”
Sheppard said the greatest vulnerability was the customs clearance, and success was down to the relationship the importer had with the customs officials.
NZ company Oravida was one of the most successful in the market and managed to land fresh milk into the market within five days, because of close partnerships with Chinese companies.
The importing process was one of the most interesting parts of the supply chain, and Sheppard said while “grey business practices” had largely been stomped out, they still existed in the form of importing agents acting as a third party to speed up the process.
“It’s very different compared to western practices, but everyone operating there needs to understand the implications of these grey areas being common business practices – you can’t have a moral high ground attitude or else you just get thrashed in the market.”
Sheppard said an opportunity still existed to join the boom in the fresh milk market.
“All the risks are heightened with the shortened shelf life of a fresh product, but a big company that can internalise the supply chain could make it work, or else a company with a great brand reputation – a proven NZ domestic brand that has grown well and would be highly desirable for a Chinese partner.”
“You need to have a Chinese partner that values and really wants your brand and that creates some interdependency within the partnership – with an alignment of interests of both parties giving security to the relationship.”
With interdependency the partner would work hard towards covering those vulnerable stages in the supply chain, rather than just contracting someone to provide a service, Sheppard said.
“There are just so many risks if you don’t get the product there within 10 days – an in-market partner has to make that happen.”
Sheppard was keen to learn about the China dairy market for his Masters in Management in Agribusiness and wanted to see the market through a different lens, so opted to study market opportunities
for a smaller product, rather than the big three of commodities, UHT and infant formula.
He gained valuable in-market contacts through NZX AgriHQ analyst Susan Kilsby and international trade consultant Ruth Richardson and after travelling and investigating the fresh milk market he spent time learning Chinese in the south of the country, a language that he would love to use in a career within the sector.
Keen to enter the export arena when he signs off his masters study in June, Nathan said he could see a couple of NZ companies, with strong brands both within the country and actively producing fresh milk in China, that would be well-positioned to enter the fresh milk market.
“I think we have a fantastic opportunity with all the Chinese tourists arriving in NZ to make a really strong connection with them while they are here and reinforce our food safety and fresh milk brands – knowledge they would then take home with them.”
“Social networking is very strong in China and that could be a key way of strengthening our fresh safe farm brand to potential consumers.
“It would be an exciting market to be involved in.”
