Fonterra intensifies focus on emerging markets

The world's biggest dairy company announced Thursday it will target emerging markets, with a particular emphasis on China, where supply is exceeding demand from the growing middle classes for dairy products.

New Zealand's Fonterra Co-operative Ltd. would focus on fast- growing markets and driving growth with "greater intensity."

"Strong economic and population growth in emerging markets is driving a situation where global demand for milk is forecast to grow by more than 100 billion liters by 2020, with New Zealand expected to contribute only 5 billion liters of additional supply by that date," Fonterra chief executive Theo Spierings said.

The strategy refresh contained elements to grow volumes, target high-value areas of nutritional need and execute these plans at speed, Spierings said in a statement.

"With overall demand growing, we need to grow volumes to protect our position as the world's leading dairy exporter. In addition, nutritional needs, particularly among the young and the elderly, are getting more urgent and specific, which is where we have the capability to add significant value," Spierings said.

The full strategy amounted to more than 100 "discrete" projects, including many underway, and involved a strong push on the fast- growing emerging markets of China, ASEAN, Latin America, the Middle East and Africa, where Fonterra already had established businesses.

"With limited milk supply, we can't do it all. We see much lower growth of dairy exports from New Zealand to the mature markets of Europe and North America so will need to refocus our operations there, with a greater emphasis on working with local partners, local added-value processing and exports through the network," he said.

"Going forward we see the potential to significantly grow milk volumes outside of New Zealand by developing a high quality local milk supply and integrating it more closely with our business in China.

"Our pilot dairy farms in China are now producing some of the highest quality milk in the country and we are looking to accelerate the development of a quality milk supply in China and integrate that with our local business by manufacturing products for Chinese customers.

"This approach means we bring back higher returns to our shareholders in New Zealand and demonstrate our long term commitment to the development of the China dairy industry."

Spierings said Fonterra's food-service business also had enormous potential: " With the worldwide trend to eating out and on-the-go, we want to really invest in growing this business in China, ASEAN and Middle East-North Africa, while exploring options for a similar business in Chile and Brazil."

Paediatric nutrition was the fastest-growing dairy category in the world and Fonterra already had a substantial business manufacturing high standard ingredients for multinational infant nutrition companies.

"There is an opportunity for us to build on this and also manufacture for leading Chinese nutrition companies, using New Zealand milk and our local assets."

Also on Thursday, Fonterra announced an 18-percent increase in its net profit after tax of 346 million NZ dollars (282.72 million U.S. dollars) in the six months to the end of January, with total sales volume growth of 51 percent and revenue up 7 percent to 10 billion NZ dollars from the same period last year.

Fonterra chairman Sir Henry van der Heyden said the farmer- owned co-operative had performed well, particularly given the turmoil in global markets.

"International dairy prices softened after the highs of last year, but remained relatively stable throughout the first half of the year," he said in a statement.

"These prices were supported by strong demand for quality dairy ingredients in emerging markets across a number of Asian economies, as well as Brazil and China, offsetting economic uncertainty in Europe."

Fonterra is the largest processor of milk in the world, producing more than 2 million tonnes of dairy ingredients and products every year and employing more than 16,000 people.