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Dairy investment can’t be taken for granted: Rabobank

In 2014 there was a flurry of inbound investment activity by Asian dairy companies, mostly from China, into the Australian and New Zealand 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 said a specific focus for overseas investors in Australian dairy has been on securing access to liquid milk and infant formula.

Report co-author, Rabobank senior dairy analyst Michael Harvey said 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,” Harvey said.

“For the New Zealand and Australian dairy sectors – collectively known as the Oceania – preferential market access 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 Australian and New Zealand dairy exporters are positioning themselves towards Asia, according to the Rabobank report.

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

“For Oceania processors, the strategic desire is often about building 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.”

For Australia, improved market access and the country’s competitive positioning are of benefit, but to extract full value, growth of dairy supply is also required to capitalise on opportunities, he said.

 New Zealand has already successfully risen to this challenge.

“Australia must grow its milk pool to fully capitalise on the trade opportunity across Asia,” Harvey said.

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.

Harvey said that spectacular rates in recent year’s 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,” he 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 unpredictable.”

Looking forward, Harvey 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 said.

 

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