Fonterra wary rising dairy export outlook may be `Trumped’

Fonterra wary rising dairy export outlook may be `Trumped’ by trade protectionist volatility

The future looks volatile says Fonterra Australia's ingredients director, Fabrizio Jorge.

The future looks volatile says Fonterra Australia's ingredients director, Fabrizio Jorge.


Improving dairy market prospects in Asia come with a warning about more competition and increased price volatility ahead


Much-improved dairy market prospects in Asia come with a warning about more competition and rising price volatility ahead for Australian exports.

In particular, global milk supply kingpin, Fonterra, is currently watching for US exporters attempting to muscle into nearby Australian and New Zealand market territory with surplus product for sale.

Hardline Trump administration attitudes on trade and immigration have apparently backfired against US exporters who previously enjoyed relatively good access to nearby South American markets, notably Mexico.

After the seriously depressed global dairy prices of the past three years, coupled with tough southern Australian production conditions in the past 12 months, “exciting” times were likely in the next five years, according to Fonterra’s Fabrizio Jorge.

Fonterra forecasts global dairy product demand rising annually by about three per cent to 900 billion litres a year by 2023.

It tips global dairy trade to leap almost a third from 66b litres to more than 90b by the end of this decade.

Last week’s Fonterra-run Global Dairy Trade (GDT) auction price lifted 1.7pc –  a return to positive territory after fortnightly dips, or near-static values, since early December.

“But the future also looks volatile –  volatility in dairy markets is here to stay,” said Mr Jorge, Fonterra Australia's ingredients director.

Although Asia was eating more dairy products and China’s relaxation of its one child policy was great news for value-added nutritional powder product exporters, he said it was getting harder to hold our international market share and customer loyalty.

Product innovation and building closer relationships between overseas consumers and our farm sector and its product marketers was vital to retaining loyalty Mr Jorge told this month’s Outlook 2017 conference.

While Chinese imports were now rising 12pc, and the rest of Asia by 5pc, global customers “don’t think twice about swapping products” if another supplier offered a more innovative or price competitive range.

“Market volatility is not going to go away. It’s here to stay,” he said.

Mr Jorge said the trigger for new competition could be as simple as the noisy and nasty immigration debate during the recent US election, which appeared to have worked against American dairy processors.

Last month, for the first time in a decade, US companies failed to win one of Mexico’s largest annual tenders for skim milk powder.

The tender went to European suppliers, forcing US exporters to look to new markets and almost certainly “directly competing with our position in South East Asia”.

Fonterra expects global prices and trade options are increasingly likely to be disrupted by a growing protectionist mood in many countries.

"Volatility has been a constant companion in recent years and the political landscape is changing with potential challenges to free trade," the giant New Zealand-owned co-operative noted as it released its half year results last week.

The group posted a 2.2pc rise in net profit to $385.3 million ($NZ418) for the six months to January 31, and a 4.6pc revenue lift to $8.5b.

The co-op's consumer and food service business, which adds value to its base cheese and milk powder products, achieved a 30pc earnings lift to $288.5m before interest and tax.

Mr Jorge noted food service export opportunities and whey-based products such as infant formula were well suited to Fonterra’s Australia’s business.

Unlike its NZ plants which handle 25b litres of milk annually, almost entirely in the summer peak season, its Australian sites such as the upgraded Stanhope and Wynyard factories in Victoria and Tasmania, ran all year.

Fonterra Australia’s expanding cheese production capacity would continually service cheese demands of fresh-conscious Asian consumers.

Cheese was also a market ideally suited to food service innovation, as seen by Fonterra’s strength in the pizza category in China.

More than 50pc of  Chinese pizza cheese is made by Fonterra in Australia or NZ, and that product was deliberately developed to cater for consumers wanting a “stretchier” cheese texture.

“Chinese consumers don’t use a fork and knife, the always use their hands to eat pizza and they love it really stretchy when they pull it apart,” Mr Jorge said.

The story Fonterra wary rising dairy export outlook may be `Trumped’ first appeared on Farm Online.


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