Li Mei Foong
Nov 3, 2014

Dairy products: Milking the deep pockets of Asia

SECTOR STUDY: Rising incomes and health awareness drive demand for dairy products across the region, but costs and quality concerns mean the right branding is crucial.

Nestlé: Brands urge Chinese consumers to drink more milk for health
Nestlé: Brands urge Chinese consumers to drink more milk for health

White is the new gold in Asia-Pacific. Milk, cheese and other dairy products are standing upon dining tables they once had no place on, thanks to rising incomes and health awareness of Asian families.

Dairy trade into the ASEAN-6 (Indonesia, Malaysia, Philippines, Thailand,
Vietnam and Singapore) passed 1.6 million tonnes in 2012, as reported by financial services provider Rabobank. 

China’s thirst for liquid protein seems insatiable. China Daily USA quoted Alan Levitt, a US Dairy Export Council spokesman, that the US dairy exports to China valued US$700 million — up six-fold on $116 million in 2007. 

Macquarie predicts Chinese dairy consumption will rise at 13 per cent a year between 2013 and 2017, with premium growth even higher, reaching 20 per cent.

Ellen Hou, group managing director for McCann Worldgroup Shanghai, calls the premium category the “growth engine” for all dairy products in China.

Hou says that this rise in demand follows high-profile milk scandals in China that eroded trust in domestic producers. As a result, international brands promote themselves by emphasising they are “100-per-cent-imported”. Local brands, on the other hand, stress they source their products from exclusive, high-quality dairy farms. 

This concern-driven demand, Hou states, is prompting more brands to hop on the high-end bandwagon. Affluent families can afford to enjoy the quality they promise, but for the less well-off it is a game of priorities. “The majority of families will invest [in high-quality milk for their children]. For the rest of the family, they would choose the lower-priced range,” she says.

This rise in demand for high-grade dairy products, coupled with rising costs, has led a number of Asian companies to begin investing in their own dairy farms.  

Vinamilk — Vietnam’s largest dairy company — is one such example. Cow husbandry has always been tricky in Asian countries, due to shortages of high-quality feed and productive land. 

“Raw materials for production still need to be imported,” says Phan Minh Tien, Vinamilk executive director of marketing. “Product costs are largely dependent on imported raw material prices.”

To reduce reliance on imports, Phan says his company aims to secure half of its raw materials by expanding its own dairy farms at an industrial scale across the country.

Unfortunately, local providers are ill-equipped to meet the ballooning demand, according to Jan Vistisen, head of marketing and sales of AustAsia Food, the distributor for fresh milk brand Greenfields in Southeast Asia. 

Greenfields recently added 1,200 Holstein Friesian cows to its existing 6,000 to meet rising demand, he says, adding the brand plans further expansions with a second farm in Indonesia.

Although some domestic labels, particularly in China, benefit from favourable government policies, imported products have stronger brand awareness and reputation.

However, Kunalan Doraisingham, account director at Priority Consultants, feels there is scope for local and regional farm operators to regain ground by educating consumers on their advantages over imported brands.

 “Importers from Europe and the US cannot compete on freshness, time to market and in some cases, even quality,” he says.

EXPERT OPINION Quality concerns change dairy from commodity to a premium product

Ellen Hou, group MD, McCann Worldgroup China

Back in 2006, the government launched a public health campaign: ‘To make Chinese strong, take 500g of milk every day.’ Since then, the dairy market has developed rapidly. Over the past few years, the dairy market has been reshuffling, and only the strong and best survived.

One significant change is that milk used to be a commodity, but increasingly we see premium packaging appearing on the shelves, such as Milk Deluxe (Te Lun Su) and WeiQuan.

Domestic brands are more aggressive in terms of innovation: GuangMing invented the shelf yogurt Momchilovtsi, which claims to contain secret ingredients from a longevity village. MengNiu first launched Milk Deluxe in 2005 to open up the super-premium milk market and enjoyed double-digit growth. WeiQuan also launched high-quality fresh milk in 2010, claiming a traceable production process. All these innovations open up the premium segmentation and drive the major category growth in terms of volume and value.

You may conclude that by going premium with a new product concept will drive growth, but that cannot be a fundamental strategy.

Whoever controls the dairy farms wins the game. Nestlé invested in Northeast China to develop its own dairy farm with a capacity of 11,000 cows in 2015, and MengNiu is targeting to develop 30 dairy farms with 150,000 cows.

Obviously there is no short cut to win the game. I would say the champion must be someone with a real commitment to the essence of this business — to benefit the nation’s wellbeing.



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