THE world’s dairy landscape looks promising in spite of the sluggish growth of 1% to 2 % annually over the past decade.
Dairy protein is now targeted to the masses as a “goodness, healthy and nutritional” product and marketed as ‘anti-junk’ in the health-conscious consumer market.
All over the world, there is a consumer shift towards nutrition and wellness.
Busy schedules and hectic lifestyles encourage use of healthy and convenient food, which have easy availability too! This has led to the introduction of smaller, portable packaging suited for mobile consumption, products designed to save time and effort in preparation such as grated cheese, cheese slices, flavoured milk et cetera.
“Traditionally, there is a strong association between dairy products and a healthy diet concept,” PricewaterhouseCoopers Corporate Finance Pte Ltd associate director Vishal Thapliyal told FOOD magazine.
“Now, there is an increasing consumer health awareness resulting from media focus on health issues, state-sponsored health initiatives, better product understanding (e.g. high fat contents in dairy products) and food related health scares.
“Dairy products market is being driven by brand-building strategies of major manufacturers. “They are increasingly adopting a health-oriented position, emphasizing greater product innovation (e.g. launching products with added ingredients and functional properties) and aggressive marketing.”
Consumer trends and blends
Milk is portrayed as ‘high-value’ food item.
The vertical integration from the farm output to processed, packaged and branded products has met the consumers’ demand for novelty and variety in the supermarket shelves.
Further, quality-safety and tasty-healthy attributes are driving consumer choices.
An innovative concoction using dairy is done by the Tianjin Food Science Research Institute in China - the milk beer: a cross between milk and beer.
In this frothy beverage, fresh milk is used as the raw material and is fermented twice. It is said to have low alcohol and carbon dioxide and is marketed as a nutritious and easily absorbable drink. China is the third country after the US and Japan to have acquired this production technology. It is termed as “milk champagne” in the developed countries.
Functional milk products low in fat and sugar, high in calcium and protein are gaining popularity, so are bio-health products such as colostrum-based health supplements and products made from organic milk.
Manufacturers are targeting children for value-added products, as declining birth rates in developed markets have led to increased disposable income available per child.
Dairy outlook: value and volume
The world’s market for dairy tends to be “thin”- global export of dairy products comprises only 5% to 6 % of the world production.
Substantial change in the demand and supply pattern, create volatility in the thin-export markets causing price swings. This poses problems for those milk producers, processors and marketers, who rely heavily on dairy exports.
Of the world market for functional foods estimated to be around US$50 billion, the global functional dairy food and ingredient market was estimated at US$ 5.3 billion (2003 statistics).
New Zealand, EU and Australia are the top three dairy exporters.
The other major exporters are the US, Canada, Argentina and Uruguay.
“While Western Europe and the US are expected to remain the largest markets, they are low growth and mature. High growth is likely in the emerging markets and developing nations (such as India, China, Indonesia, Africa, Middle East etc) resulting from overall economic growth, increasing disposable incomes, lifestyle changes and socio-economic factors,” forecasts Vishal.
The Asian big picture
Average per capita dairy consumption (including fluid milk, butter, cheese etc.) in the last decade has been: 4.5 kg in China, 35.7 kg in India, 2.1 kg in Indonesia, 44.2 kg in Japan, 7.7 kg in Malaysia, 2.4 kg in the Philippines, 35.2 kg in South Korea, 9.8 kg in Thailand, and 1.8 kg in Vietnam. This is in stark contrast compared to 105 kg per capita in EU-15 countries, 120 kg per capita in Australia and 113 kg per capita in the US.
In spite of this, the outlook for the Asian dairy industry looks promising.
Urbanisation, population growth, rise in income levels, westernisation trends, along with modernisation of the marketing infrastructure, will certainly give rise to opportunities for the dairy exporters all over the world.
Asia is hailed as a booming market along with Latin America, in the demand for dairy in the coming years.
Hong Kong, South Korea, Singapore and Taiwan, the ‘tiger economies’ are witnessing high consumption in some dairy categories in the ‘health’ and ‘convenience’ platform e.g. fortified milk (with vitamins etc), flavoured milk, soy milk (which is believed to be low in cholesterol), probiotic yogurt, flavoured yogurt, yogurt drinks etc.
However, it is interesting to note that the Asian consumers are not as uniform as consumers in developed markets (US/Europe etc), where dairy products have been traditionally a part of staple food.
Across Asian consumers, there are differences due to socio-economic and cultural factors, for e.g. In India, fresh milk is believed to be the largest segment as it is perceived to be superior in nutritional contents; whereas in Western markets, processed milk (long life UHT etc) is more popular.
“Dairy consumption in South East Asia is increasing by 6% to 8% annually and in China by 10% to 15%,” Fonterra Cooperative Group Ltd manager for foodservices Asia Alastair Bruce said.
“We have achieved a 67% growth in sales in China and expanded our operation into four more cities including Dalian, Hang Zhou, Nanjing and Shenzhen.”
In China, traditionally, drinking milk is not a dietary habit as many are lactose intolerant. However, with increasing health awareness, milk consumption is gradually increasing.
The National Bureau of Statistics of China predicts per capita consumption to grow from 18 kg in 2010 through 41 kg in 2030.
In comparison, India is the single largest milk producer and milk consumer in the world with per capita milk availability at 84.7 kg in 2005.
There is increased brand orientation as major manufacturers seek to gain market share from private labels.
Value addition to product ranges through segmentation of consumer base along the lines of gender, medical requirements, national culture etc.
“Age has also been another important factor determining manufacturers’ strategies; in particular, child-focused products were a notable feature of the market geographical expansion of major manufacturers,” adds Vishal.
The diary industry in Asia is expected to witness alliances, mergers and take overs. A prime example is Campina, the Dutch dairy co-operative. It has a 50/50 JV with a Thai local firm, Thai Dairy Industries, and has a JV with Vinamilk, Vietnam’s largest dairy firm.
Statistics reveal that Vietnam has the lowest per capita consumption of dairy in the whole of Asia.
International players still have an interest here as the market shows significant expansion traits, with the changes in income and demographics.
Similarly, in 2005, Danish culture maker formed strategic alliance with China’s leading milk producer, Mengniu Dairy, to promote the concept of healthy bacteria in milk.
Fonterra: the dairy giant
In the dairy landscape food service is a rapidly growing business segment.
Known for its ‘cow to consumer’ slogan, the dairy co-operative Fonterra, has been in the food service business since a decade and supplies to hotels, restaurants and cafes directly with offerings to suit their needs.
Speaking of the growing importance of the food services business, Alastair asserts:
“Our food services business is based on providing the best and trusted solutions for our customers. This includes, demand creation activity, providing excellence in functional products and technical support.”
The company’s focus is on the ready-to-use product segment, where innovation efforts are made into developing products that food services customers will adopt as their preferred choice.
Fonterra’s brands Anchor, Mainland, and Perfect Italiano are well known in the market.
“In addition, we are increasingly seeing food services as a channel to reach consumers. For example, people start eating pizza in a restaurant, and then they want to cook these foods at home too! In that sense we are able to grow our branded product sales on the back of this growing trend,” mentions Alastair.
Understanding Asia’s complex and evolving market is a challenge for any company doing business in the region. It’s a market that is diverse and has been going through significant economic and social change in recent years.
Generally, there have been more stringent regulations on production standards in the emerging markets resulting largely from food related health scares.
For Fonterra, market access is important. Japanese and Korean markets tend to be highly protected in comparison with other markets.
The company works closely alongside government efforts towards Free Trade Agreements with China, Malaysia and ASEAN and other trade negotiations to help enhance market access.
The diversity of the markets also means, working hard to ensure that their products are adapted to every market. For example, Fonterra develops multi-language packaging and marketing efforts to meet these needs.
Commenting on the dining-out culture, Alastair remarks:
“While Asian eating habits aren’t normally associated with dairy, the fact is, Asian consumers are now eating vast amounts of pizzas, pastas and bakery goods like cookies and croissants. Of course, these all contain large amounts of dairy – whether this it’s cheese, butter or cream.”
“All of this has meant that there has been no better time for Fonterra Foodservices than now and more specifically, for dairy experts like ourselves to capitalize on these opportunities.”