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New Zealand has the unique advantage of being able to produce large quantities of milk, while at the same time Asia is a rapidly growing economy with a strong desire to consume milk. Asia is taking an increasingly large market share within Fonterra’s portfolio and shifting the balance from the traditional markets of the US and Europe.

Europe has the capacity to produce large volumes of its own milk and, this, together with high trade barriers, have made it a difficult market to access. Asia, by comparison, with its large population base and close proximity to New Zealand, is now seen as a critical part of the future for the company.

Countries such as Japan, China and Indonesia are among Fonterra’s top five international markets.

  • In China, where a distribution network covers approximately 40 cities, dairy consumption is growing by 10 percent every year.
  • In other developing markets such as Vietnam, dairy consumption grew from less than 1kg per capita per year in the early 1990s to almost 10kg at the start of this decade.
  • In Malaysia, Fonterra commands 76 percent share of the adult milk category through its Anlene brand, and 80 percent share for prenatal dairy products with Anmum.
  • Fonterra is also the largest dairy company in Sri Lanka, with a market share of close to 50 percent. Across Asia, there are currently 2,500 employees in 15 countries.

A growing population of more affluent young Asians increasingly buys milk-based products such as pizzas and lattes from fast-food restaurants, cafes and hotels, which in turn is driving growth in Fonterra’s Foodservice business. Branded consumer goods including Anlene and Anchor are now leading brands in South East Asia and China. This growth is due to increased concerns among consumers about bone health and the impact of rising consumer incomes on demand for dairy products. Particularly in Asia, consumers are seeking health-giving products to supplement their diets.

Shopkeeper in Vietnam pointing out Anlene on display in their shop

In the markets of Malaysia, Indonesia, Philippines and Thailand, Fonterra is a leader in adult nutrition through the Anlene brand. In recent years, this product range has been positioned as a key contributor to the prevention of osteoporosis and, in 2011, was extended to include joint health by launching Anlene™ Total, which includes glucosamine, an amino sugar essential for joint cartilage.

Fonterra farms in China

Although New Zealand is comparatively close, the distance to Asia still requires that the product be shipped, making it uneconomic in its natural form and requiring the milk to be dried. Rising consumer incomes and changing preferences have increased demand for liquid or fresh milk, a demand that cannot be met from New Zealand. To address this issue, Fonterra is establishing farms in China, with fresh milk complementing imported milk powders.

Situated two hours east of Beijing in Hangu, Tangshan Fonterra Farm was established in 2007 as a pilot project to demonstrate that Fonterra can produce New Zealand standard milk within the Chinese environment. Established with 3000 New Zealand cows, it has since grown to around 7000 cows, half of which, on average, are milking. The farm produced around 25 million litres of milk in the 2009/10 financial year, rising to around 28 million litres the 2010/11 financial year.

Following the successful pilot, Fonterra and the Government of Yutian County formally agreed in October 2010 to develop a new 3000 cow Fonterra dairy farm in Yutian County, Hebei Province, scheduled to be in operation by November 2011. 

Plans for a third new farm in China are also progressing and Fonterra is targeting a cluster of 4-6 farms in Hebei in the next five years.

Stringent tariff barriers in Japan, India, and Korea have heavily influenced the level of sales in these countries as they import only as much as they feel is necessary. Competing with more locally branded consumer goods in countries such as India and Japan is very expensive. It is hoped that New Zealand will soon be able to sign a Free Trade Agreement with India to reduce these tariffs. Fonterra is conducting feasibility studies into establishing a dairy farm in India.

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