Fonterra returns to India to form joint venture with Future Group

Fonterra is to re-enter the vast Indian market. Photo / Getty Images

After a decade's absence, Fonterra is dipping its toes back into the vast Indian dairy market in the form of a joint venture with the sub-continent's biggest retailer, Future Group.

The co-op said in a statement that it had tied up with the Future Consumer, which is part of Future Group, to make a range of consumer and foodservice dairy products that will help meet the growing demand for high-quality dairy nutrition in India.

It will be Fonterra's second foray into India since the co-op's inception.

In 2001, Fonterra formed a joint venture with Bangalore-based Britannia Industries but pulled out in 2009, saying at the time that it no longer fitted its strategic priorities.

But Lukas Paravicini, Fonterra's chief operating officer global consumer and foodservice, said the co-op had over the years carefully studied opportunities in India - a country that is self sufficient in dairy.

The venture - Fonterra Future Dairy Partners - will enable Fonterra to establish a presence in India, he said.

"It will allow us to prepare the groundwork and make the most of our expertise as we enter the world's largest and fastest growing dairy industry," he said.

Consumer demand for dairy in India over the next seven years is set to increase by 82 billion litres – seven times the forecast growth for China, he said.

The partnership will be driven by growth through profitability. The initial stages of the partnership will focus on product development, and marketing.

The first consumer products will be launched by the middle of 2019, using both locally sourced milk and dairy products from New Zealand.

"We will also use this time to settle in the partnership infrastructure, learn the market and prioritise geographies," he said.

Paravicini told the Herald in a phone interview from India that the market there had evolved significantly since Fonterra's departure.

"It's gone away from the traditional, locally based product to more innovative value-added range of products," he said.

But he said Fonterra was wary being "blinded" by the opportunities there. "We know that we can't do it alone. The market is too complex and too big."

Unlike China, dairy already forms a big part of the local diet - about 25 per cent - and is seen as being culturally important.

Paravicini added that the joint venture comes at a time when the Indian dairy industry is transforming itself away from traditional locally-based dairy businesses with limited product and brand differentiation, to a new era where more value-added and innovative dairy products are in high demand across the country.

Fonterra's managing director Sri Lanka & Indian Subcontinent, Sunil Sethi, said that India was also witnessing the emergence of new retail organisations like Future Consumer, which had a deep understanding of the Indian consumer, a nationwide supply chain and retail network.

"These dynamics have created an opportunity for this partnership, where we will focus on leveraging our global dairy innovation, manufacturing and nutrition expertise," Sethi said.

Kishore Biyani, group chief executive officer for Future Group, said the dairy industry in India is flourishing.

"Consumption of milk and other dairy products in India are increasing and will continue to receive strong demand," he said in a statement.

"With Fonterra, Future Consumer will enhance its food and fast moving consumer goods (FMCG) portfolio and will offer a variety of dairy products which are high in demand and consumed daily," he said.

Driving this growth is the country's young population where 70 per cent of people are below 45 years old.

"They are digital, live in urban areas, lead an active lifestyle, have more disposable income, and want to consume higher quality and higher nutritional dairy products."

Future Group has four listed entities on Indian stock exchanges, 2000 retail stores, 5000 distribution centres and is present in most of India's provinces.