Magnetic milk – the lure of dairy investment down under

Magnetic milk – the lure of dairy investment down under

In 2014 there was a flurry of inbound investment activity by Asian dairy companies, mostly from China, into the New Zealand and Australian dairy sectors. However Rabobank warns that ongoing growth in import requirements by Chinese and wider Asian dairy companies shouldn’t be taken for granted.

In a recently-released report ‘Magnetic milk – the lure of dairy investment down under’, global agribusiness banking specialist Rabobank says a specific focus for overseas investors in New Zealand dairy has been on securing access to liquid milk and ingredients for infant formula.

Report co-author, Rabobank director of Dairy Research, New Zealand and Asia Hayley Moynihan says a quest to secure access to a high-quality, safe milk pool is driving international investment in dairy down under.

“Between 2014 and 2020 we expect China and South East Asia combined to account for almost one third of the increase in global dairy imports,” Ms Moynihan says.

“For the New Zealand and Australian dairy sectors – collectively known as Oceania – preferential market access, reputation for quality and geographical proximity are the magnetic forces supporting the investment flows into this region, and they will continue to do so.”

With demand growth in Asia expected to outstrip local supply growth capabilities, and hence drive global trade over the medium-term, many New Zealand and Australian dairy exporters are positioning themselves towards Asia, the Rabobank report says.

“Many company strategies are heavily focused on capitalising on the growing opportunity presented by dairy demand in Asia,” Ms Moynihan says.

“For Oceania processors, the strategic desire is often about building links to extensive distribution networks and local knowledge to tap into key growth export markets. Strategic partnerships can help smooth market access and thwart the impost of regulatory trade barriers.”

However, for all dairy exporters looking to engineer export strategies towards dairy markets in China, a level of caution is now required particularly when it comes to nutritional powders and liquid milk markets, Rabobank warns.

Ms Moynihan says that spectacular rates in recent years’ growth have attracted significant investment both within Oceania and further afield as companies recognise the opportunity.

“Import volume growth is expected to expand, but the rate of growth will be slower over the medium-term as the dairy market matures and retail price points challenge consumers who are facing lower rates of income growth,” she says.

“At the same time, there is significant investment in capacity in many parts of the world generating intense competition and the risk of oversupply.

“Complicating matters, regulation has been tightened, particularly in the Chinese infant formula category, and is still proving challenging.”

Looking forward, Ms Moynihan notes companies both inside and outside of the Asian region will continue to deepen market relationships and boost cooperation.

Supply chain management and vertical integration is a means for all parties to offer integrated and secure supply chains in an era of heightened demand for food safety, Rabobank says.

Rabobank New Zealand is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 115 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 41 countries, servicing the needs of about 10 million clients worldwide through a network of close to 1600 offices and branches. Rabobank New Zealand is one of the country's leading rural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 33 branches throughout New Zealand.

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