A decade ago the value of globally traded dairy commodities was less than US$8 billion dollars, but last year the global dairy market was worth about US$25b. Ten years ago Asia brought about a third of all dairy products traded but now it accounts for half of the market. China alone buys about 20% of the dairy products that are traded globally.
That means it’s not surprising that all the world’s major dairy companies have a growth strategy that involves Asia. Dairy heavyweights like Nestle, Danone, Friesland Campina, Abbott, Arla, Lactalis, and Dairy Farmers of America all have their sights set on securing a larger share of the Chinese market.
NZ has been well-positioned to meet the growing needs of the Asian markets because of both geographical location and the products we manufacture. Growth in Asian markets in the past decade has primarily been in the form of milk proteins rather than milk fats. Dairy products are one of the cheapest sources of protein so are often favoured over products like meat, which are significantly more expensive.
Our manufacturing capacity is geared towards milk powder production, a product that delivers the protein the Asian markets crave, and our largest competitors are in the United States and Europe. Traditionally a very small portion of US and European milk has been turned into milk powders and the milk powder driers in these countries were often not able to produce milk powder to the specifications demanded by Asian customers. This is changing. Most of the major dairy processors have invested in high-spec manufacturing facilities, primarily to capture a larger portion of the valuable Asian market.
NZ supplies nearly 70% of China’s dairy imports – a market that is valued at more than US$7b, which is why it looks attractive to so many other dairy processors.
Elsewhere in Asia the market share is more evenly divided between NZ, the European Union and the US, although some markets have historical ties with particular countries which gives them an edge. For example, in Indonesia the EU has a slightly higher market share than NZ and the US, while the US is the largest supplier of dairy products to the Philippines.
Meanwhile Sri Lanka relies heavily on us. We remain Malaysia’s preferred supplier but we have lost market share this year to both the EU and US.
‘Most of the major dairy processors have invested in high-spec manufacturing facilities, primarily to capture a larger portion of the valuable Asian market.’
This year the US has emerged as the largest supplier of dairy products to Japan, nudging Australia off the number one spot, while NZ and EU are close behind in third and fourth places respectively. Japan is Asia’s second most valuable market for dairy products but is worth less than a quarter of the Chinese market.
Our market share in South Korea has almost halved in the past five years to less than 9%. The US in particular has grown its share of this market, which like Japan has developed a taste for cheese.
Milk powder sourced from here has been the product of choice for China as it looked to fill the shortage in its own domestic milk production. Whole milk powder and skim milk powder are used in a variety of products, including yoghurt and infant formula.
But a new trend has emerged in this market. China is sourcing more and more of its dairy requirements already packaged for sale to consumers. This trend has evolved because of a consumer preference for imported goods, in which they place a higher level of trust than goods which have been fully or partly manufactured within China. We aren’t as well equipped to exploit this new trend as some of its competitors, as we don’t have the facilities to produce a lot of consumer goods.
The range of UHT milk being imported in China is vast, with European and Australian suppliers well represented on the supermarket shelves. The trend in the infant formula market is similar. Our dairy companies are investing in UHT milk chains and some now have infant formula production facilities. However, unless vast amounts of money are poured into NZ plants designed to produce consumer goods, Asian buyers will have to look elsewhere for the goods their consumers demand.
Susan Kilsby is an AgriHQ dairy analyst.
