Saturday, March 30, 2024

NZ dairy formulas building Chinese babies

Avatar photo
Without fanfare the New Zealand dairy industry has delivered a substantial increase in value added to commodities by turning a sizable portion into infant formula before export.
Reading Time: 3 minutes

But there are now fears China’s low birth rate, its attempts to control the number of companies and brands of infant formula and the coronavirus outbreak might slow future growth.

The latest figures from Statistics NZ show infant formula exports in 2019 of about 120,000 tonnes grew by 30% over the year before to earn export revenue in excess of $1.7 billion.

For comparison, exports in 2015 were worth $450 million.

StatsNZ couldn’t say what proportion of exports are retail-ready products or bulk components, including non-dairy ingredients.

The industry earned $15/kg from last year’s large volume versus $4-$8/kg for the bulk of dairy exports.

Four major blenders, packers and exporters dominate the trade – Fonterra, Synlait, Danone Nutricia and GMP.

They add value by what is called wet mixing of dairy and non-dairy ingredients followed by spray drying then packing into the retail-ready cans for export or in 25kg bags for canning offshore, mainly in Australia and China.

A proportion of the trade is facilitated by private citizens or commission agents buying cans in NZ or Australian stores and sending them to China by family or commercial arrangements, called the daigou channel.

For example, the A2 Milk Company, which is active in Australia and NZ but not a manufacturer, earned $1b of infant formula revenue in FY2019, up 40% on the year before. 

It said two-thirds of its sales were in Australia and NZ, including daigou, and a third in China.

But more than 75% was probably consumed in China though A2 did not disclose that statistic.

Synlait reported consumer-packaged infant formula sales of 43,000 tonnes, up 21%, which was a tenfold increase over the past five years.

In terms of revenue the ticket is being clipped twice because A2 has a supply agreement with Synlait covering most of its production.

All formula manufacturing plants, formulas and brands have to be approved by the Chinese government and the trade has been affected by non-licensing of what Synlait calls second and third-tier blending and canning facilities.

In its latest market update Synlait predicts a significant drop in infant base powder sales because of market consolidation and a reduction in demand from brand owners who have yet to receive brand registration.

Tier one companies include multinationals like Danone, Nestle, Fonterra, Wyeth and Abbott.

They are now taking blending and canning back in-house, where the necessary approvals and licences have been secured.

Synlait has two infant formula facilities, at its home base in Dunsandel, Canterbury, and in Manukau, Auckland.

Along with its newly commissioned Pokeno processing plant it has wet-mix kitchens with 130,000 tonnes annual capacity backed by canning capacity of 80,000 tonnes.

It has a minimum five-year contract with A2 Company, renewed last year. 

Fonterra channels its infant formula blending and packing through its Crawford St facility in Hamilton as part of a broader category it calls paediatric ingredients and products.

The biggest markets are China and NZ while smaller quantities go to Europe, southeast Asia, the Middle East, North Asia and Australia, global paediatrics director Susan Reelick said.

Fonterra supplies most if not all the major infant formula manufacturers in NZ with ingredients ranging from fresh milk and formula ingredients to infant formula in bulk or consumer packs they process and export to the world market.

Fonterra produces formulas for five stages of child growth from pregnancy and babies to preschoolers.

It sells canned products, bulk ingredients including powders, proteins and organics and speciality ingredients like probiotics, hydrolysates and lactoferrin.

Fonterra Research and Development Centre devised and clinically tested specialty ingredients that can be produced at scale efficiently.

Reelick said annual revenue for paediatric products is in excess of $600m, 95% of which is classified as advanced ingredients, returning significantly more than standard dairy commodities.

Danone Nutricia said its exports from two NZ manufacturing facilities go to Australia, China and some southeast Asian countries.

The French-based multinational has invested more than $100m in NZ facilities and has expanded into dairy alternatives such as goat and sheep milk products.

“While the sector has enjoyed solid growth there is potential for some volatility in the coming period as countries such as China commit to developing domestic infant formula manufacturing capability,” a Danone spokesman said.

GMP Dairy, an Australian-owned private company with blending and canning plants in Auckland, was approached for comments but did not respond.

NZ Dairy Companies Association chairman Malcolm Bailey, a former Fonterra director and Federated Farmers president, said there is no lack of willingness by the industry to add value to dairy exports.

But as more sophisticated products are sold the tariffs applied by the receiving countries tend to escalate.

The capital companies have to spend to equip them for that trade is considerable and brings exposure to different market risks, he said.

Total
0
Shares
People are also reading