Dairy executive upbeat on sector

Robust consumer demand and stringent quality control norms will enable the Chinese dairy sector to play a bigger role in the global market and create a strong platform for sustained industry growth, the top official of a leading global dairy giant said on Tuesday.

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Kelvin Wickham, president, greater China and India of New Zealand dairy giant Fonterra, said that during the past two years there have been several significant and positive changes in the Chinese dairy sector, as a result of the growing consumer demand for safe and quality dairy products. The strict government regulations have led to the development of safer dairy products in China, he said.

Though some quality issues had raised trust concerns for the sector in the past, the same has been addressed with better transparency and higher standards, an overall positive for the industry, Wickham said.

"The dairy industry has a shared aspiration that we want customers to trust the safety of our products," he said.

Wickham said he believes that China, the largest importer of dairy products in the world, will play a bigger role in the Global Dairy Trade platform, an auction platform established by Fonterra in 2008 for internationally traded dairy products. The platform was designed to offer more stability and transparency to dairy trades, and develop financial derivatives to overcome market fluctuations.

Fonterra currently controls one-third of the global dairy trade. At the moment, about 20 to 25 percent of Fonterra's production in New Zealand is traded via GDT platform, and companies from Europe and Australia are also joining the platform, Wickham said.

Since February, the GDT Price Index has dropped by more than 40 percent, which analysts said was due to high inventories as a result of China's mass imports in the second half of 2013 following a series of domestic scandals. But they said the price is likely to pick up when inventory level falls and consumer confidence restores.

To better tap into China's growing demand for high quality dairy products, Fonterra aims to build 30 dairy farms in China by 2020. The dairy farms will employ nearly 4,000 staff and will produce 1 billion liters of milk a year by 2020.

Fonterra earlier set up a dairy farm hub in Tangshan, Hebei province, and a second one in Shanxi province is under construction. The company announced in July that it would partner with US dairy giant Abbott to develop a third dairy farm hub in China.

The company has also expanded its food services business in China from 12 cities to 24 cities in the past two years, and also set up an innovation center in Shanghai to develop products that better suit Chinese consumers. In the future, Wickham said, the company will also build a processing facility to meet the growing demand.

"The industry is changing, as small dairy farms are becoming less and bigger dairy farms are becoming more, which goes in line with the desire to have higher quality products," he said.

"For better products you need enough investments to ensure product quality, skills and training of employees, and only big dairy farms are capable of that."

Although Wickham will soon leave his post in China to take charge of Fonterra's global supply of dairy ingredients, he said he will continue to focus on China as the country is becoming a key market, and Fonterra hopes to provide Chinese customers with dairy products "from grass to glass".