NZ fertile investment ground for cream of global dairy industry players: Coriolis report

China's Yili is one of the world's top 10 dairy companies operating in New Zealand through its purchase of Westland Milk. Photo / Clinton Lloyd

Up to 700 firms are making dairy products in New Zealand, including seven of the world’s top 10 dairy companies, a new investment report on the dairy industry says.

Coriolis Research, an Australasian agri-food consultancy, also found five multinationals had taken a position in the New Zealand industry in the past five years. They included icecream giant Froneri, which bought Kiwi brand Tip Top from Fonterra in 2019 for $380 million.

The Coriolis report, Dairy 2024, was compiled for prospective investors in the New Zealand dairy industry, the world’s 10th largest milk producer and largest exporter by value with 14% of global trade.

The report noted that “strangely”, varying official definitions of dairy product manufacturing meant it was not immediately obvious how many dairy companies New Zealand hosted, but Coriolis had modelled 600-700 firms.

Its analysis showed 90% of them had revenue under $10m, while around 50, or 10%, of operators reported revenue above this.

While the farmer-owned cooperative Fonterra continued to be the largest company in New Zealand by turnover, there was now a “strong” second tier of players with revenue of more than $1 billion, including Talley’s, Yili and a2 Milk.

There were 16 major milk-to-ingredient processors: 12 of cow milk, two of goat milk and two of sheep milk. The country hosted a growing group of consumer dairy manufacturers with around 100 making products ranging from fluid and flavoured milk to yoghurts and specialty cheeses.

Coriolis said investors in the industry included five private equity firms, 14 global multinationals and seven state-owned enterprises, one of which, Landcorp, also known as Pamu, is a New Zealand Crown-owned entity.

One of the five private equity investors was Rank Group, the investment vehicle of Kiwi rich-lister Graeme Hart. His food brands vehicle Walter & Wild acquired Emerald Foods in 2021. It makes Movenpick icecream and other branded foods for Asia.

Kiwi businessman Graeme Hart has invested in the dairy industry through Emerald Foods, maker of Movenpick icecream. Photo / File

The top 10 by revenue global dairy companies operating in New Zealand were Lactalis, the world’s largest dairy company with 2023 revenue of US$28.6b ($47b); Nestle, No 3 at US$23.3b ($38.3b); Danone, No 4 at US$21.2b ($34.8b); Yili, No 5 at US18.3b ($30.1b); Friesland and Mengnui, No 7 and No 8 respectively with $US14.4b ($23.6b); and New Zealand’s Fonterra, No 9 at US$14.2b ($23.3b). (The three top 10 global players not in New Zealand were No 2 Dairy Farmers of America, No 6 Arla Foods, and No 10, Saputo.)

But the bulk of committed capital in the industry was still domestic, Coriolis said.

It found the dairy supply chain from farmers to processing delivered $US14.6b ($24b) in ingredient and consumer dairy products to around 120 world markets a year. Estimated global retail sales of New Zealand-made sports nutrition and weight management products using milk were NZ$300m.

But the report suggested New Zealand was not realising significant gains in either milk fat or protein per litre of milk. More milk dry matter (milk is mostly water, the 12% that is dry matter is mainly fat, sugar and protein) would require more milk.

“Despite significant long-term investment, (cow) breeders have not been able to move this variable at any material rate of improvement, particularly when compared with genetic gains in other species eg meat chicken growth rates.

”This implies most of the increases in processed dairy products that New Zealand has realised are a result of more cows and more milk per cow, rather than more milk solids per litre. Increasing total milk solids production going forward will require producing more milk per cow.”

Luckily, the report said, New Zealand was achieving more milk per cow per year “in an almost clockwork-like fashion”, with no signs of continuous improvement “in this critical driver is slowing”.

The average litres of milk produced per dairy cow had increased by 1% per year between 1975 and 2023.

“New Zealand is nowhere near the biological limit; Israel gets three times as much milk per cow. The relentless regularity of this improvement supports our contention that - independent of any views on future cow numbers - New Zealand is not anywhere near ‘peak milk’; at some point, the recent decline in cow numbers will stabilise and milk per cow will continue to grow.

“This is not the result of a single thing: a huge range of variables contribute to the continuous achievement of this outcome, eg. management, genetics, R&D. Can anything bend this trajectory?”

NZ is not realising significant gains in milkfat or protein per litre of milk, says a new report by agri-food consultancy Coriolis. Photo / Supplied

Future production depended on a small number of key drivers, chief among them, cow numbers, average milk production per cow, and the milk price paid to farmers.

Price signals to increase production had been “muted” recently while input costs had been growing faster than milk prices. As a result, production had stalled for the past eight years, the report said.

Against this, the global dairy industry, in 2022 valued at US$840b ($1392b), was growing, the report said.

Global milk production grew by 22% in the past decade or 169 million tonnes, meaning the world was “bringing online” a new New Zealand (20.7 million tonnes) worth of dairy production every one and a half years. Every year, the average person drank another litre more in raw milk equivalent terms. Therefore every year 15% of all new food consumption was dairy product in all its forms.

Coriolis said global cross-border trade in dairy products was growing value on the back of growing volumes and growing prices. Compound annual growth of trade was 7.1% for the past 20 years.

The report said its modelling suggested 80% of New Zealand dairy production, net including imports, was exported, 10% further transformed domestically (eg butter into croissants) and 10% consumed within the country. The main export product classes were milk powders and protein, including infant formula ingredients; butter and cheese; and processed and packaged food such as icecream and infant formula.

Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the $26 billion dairy industry, agribusiness, exporting and the logistics sector and supply chains.