Milking developments in Asia's dairy sector

Changing diets and strength in numbers are key to understanding positive growth in the region's dairy market

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VOLUME growth is only happening in developing regions like China, South East Asia and selected markets in the Middle East, Africa and Latin America, according to Rabobank International. In contrast, the main growth challenge in the developed markets of Europe, the USA and New Zealand is to introduce new characteristics to standard dairy products - often related to health and convenience - for which the consumer becomes willing to pay more. Reflecting the growth of the market Rabobank's Global Dairy Top 20 shows the inclusion of Japan and China in the world dairy sector. Whilst the Top10 is still headed by Nestl? and dominated by players from the mature markets of Europe and the US, the Japanese contender Meiji Dairies moved up three places to number 11, and Yili from China shot into the rankings for the first time at number 17. Although Japanese dairy consumption has probably reached its peak at around 60 litres per person per year, Meiji Dairies (11) and Morinaga (14) were able to improve their position over competitors thanks to the relatively stable yen and local prices. Whilst Japan has a fairly mature milk-drinking market, changing diets and strength in numbers are key to understanding the growth of demand in the rest of Asia, according to Mark Voorbergen of Rabobank's Food & Agribusiness Research and Advisory. "The Chinese government is helping create a whole new generation of dairy consumers by promoting a school milk programme. So Chinese dairy companies will have ample opportunity to increase sales simply by keeping up with domestic market growth," he said. Putting consumption into perspective, Mr Voorbergen contrasts the 300 litres of dairy products consumed per person per year in the Netherlands, with the current 20 litres per person per year in China. He points out, however that Rabobank expects "the Chinese market to grow along the same lines as Japan or South Korea, from zero levels five years ago to a maximum of 50 litres per person per year." Ramping up investments in Asia Reflecting confidence in further growth in Asia's dairy market, major players are increasing investments in the region and expanding capacities to serve future demand for liquid milk. New Zealand's Fonterra recently completed an NZ$8 million expansion of its UHT milk processing facilities in Auckland, in a bid to meet growing demand in Asia and the Pacific. UHT is one of the fastest growing niches in the industry and one that presents significant opportunities, the company said. The world's largest dairy producer by volume and fifth by sales in expects global consumption of UHT to increase at a compound annual rate of 5.2% through to 2012, with much of this growth is coming from Asian markets. Limited domestic supply, growing populations and education about the nutritional benefits of dairy are all feeding demand for in Asia, where Fonterra plans to focus its efforts. "With this increased production capacity, we will be able to expand our presence in our existing markets of China, Singapore and Hong Kong, as well as start exporting in to new markets such as Malaysia, Indonesia and Viet Nam," said Peter McClure, managing director of Fonterra Brands New Zealand. Rabobank notes, however, that moving forward, raw materials availability and climate will prove a challenge for Asian moving forward. Decisions on whether to rely on imported raw materials or on developing a fresh supply chain locally or elsewhere will all influence the global market balance, it said. Vinamilk, the major dairy producer in Viet Nam, has chosen to do both by operating five new local farms and by taking 19.3% stake in New Zealand-based Miraka Limited. The 48% state-owned company has a one-third share of Viet Nam's dairy products market, estimated atRunners Alliance