Fonterra poised to milk China's dairy sector

Waikato-born farmer Mark Dewdney's turf covers 11 nations. Picture / Martin Sykes

Dairy giant Fonterra brought 150 of its top worldwide executives to Auckland for a two-day congress last week, to swap ideas and reaffirm their global vision.

Fonterra Ingredients Asia regional managing director Mark Dewdney says the vision is simple. "When people think dairy we want them to think Fonterra."

He says his Asian marketplace stretches from the Indian subcontinent to South-east Asia, covering 11 countries and about 3.2 billion people - half the world's population.

"It's not New Zealand now, it's not New Zealand and Australia, it's New Zealand, Australia and Asia," Dewdney says.

"It's a region that we will continue to grow in and we have to do everything we can to strengthen our overall company position."

Fonterra Ingredients Asia supplies dairy ingredients to manufacturing operations, including milk powders, cheese, butter, protein products for infant formula applications, calcium-fortified colostrum, and immune-boosting lactoferrin products.

Dewdney says it holds about 45 per cent of the Asian import market. And the payback is big.

Asia contributed 29 per cent towards Fonterra's $8.1 billion ingredients revenue last year.

Dewdney says adaptability, timely reaction and flexibility are key requirements for dealing with a region of diverse markets, including the high-tariff, developed market in Japan and the lower-tariff, fast-developing market in China.

Fonterra says Chinese dairy consumption is growing by 10 per cent a year, well ahead of the global average of 2 per cent, and domestic production of dairy products is growing at about 15 per cent.

Dewdney is looking to take advantage of a growing Chinese urban population, increasingly influenced by Western diets.

Fonterra is closing its Hong Kong office and moving all activity to the mainland, which he says "will enable us to be more involved in the local business activity inside China".

The company will develop its China strategy during the next six months but a cautious approach will be taken when investing farmer shareholders' money.

"You have to make sure that you make the right decision for the long term, not a quick decision that ends up being a wrong one."

Partnership with local dairy and food manufacturers is possible but the company does not plan to collect milk directly from Chinese dairy farmers.

Although expecting China to remain a substantial import market, Dewdney recognises the possibilities of a growing domestic industry and aims for a "position on both sides".

"If demand grows and outpaces supply in a market the size of China it can suddenly open up a huge import opportunity," he says.

"On the other hand, if supply grew by 1 or 2 per cent more than consumption over a period of time there could well be Chinese products that are opportunities to export."

Between 25 and 30 per cent of products shipped into South-east Asia are sourced outside New Zealand.

The limitations of the nine-month New Zealand milk season led Fonterra to build a global network of supplier partnerships to ensure the availability of ingredients.

"That's one of the great assets that Fonterra has - its in-depth knowledge of how countries operate and how trade operates inside a lot of developing countries."

Dewdney is based in Tokyo and, although he's a big player in a global company, the Waikato-born farmer still likes to milk the cows.

"People work for Fonterra because they believe in what this business is about."

Gate opens

* The China strategy is to be developed in the next six months.
* The Hong Kong office has been closed, with activities moved to the mainland.
* Chinese dairy consumption is growing at 10 per cent a year.
* Domestic production of dairy products is growing at about 15 per cent annually.