Thursday, November 22, 2012

Cooperation between Chinese & Overseas Dairy Industries in Vogue

On 9 October, Beingmate revealed a cooperation with Ireland’s Kerry Group Plc (Kerry). It comes in the wake of similar moves from Wahaha, Synutra and China Investment Corporation (CIC) in September, suggesting an acceleration in the trend towards cooperation between Chinese and overseas companies in the dairy industry, according to CCM’s October issue of Dairy Products China News.

Beingmate signed the strategic cooperation contract with Kerry on 2 October; the arrangement includes 4 aspects:
 Cooperation in infant formula & infant foods: Kerry will provide comprehensive technical support for Beingmate (in theory, on a worldwide basis), whilst Beingmate will prioritise Kerry in its raw materials supply and product development initiatives
 Overseas cooperation: Kerry will suggest a “new management structure overseas” – possibly a subsidiary or cooperation project of some sort
 Kerry will be active in providing technology support in nutrition and infant formula/foods for Beingmate when required
 Beingmate can visit Kerry R&D centres, and Kerry should treat Beingmate’s projects preferentially

Kerry has historically transitioned to being a major ingredients and flavours group in which dairy plays a relatively minor role. However it is Ireland’s no. 2 supplier to China of the key formula ingredient demineralised whey powder and has had a longstanding supply relationship with Beingmate. The deal is especially timely as Ireland’s milk supply is undergoing a significant growth phase in preparation for Europe’s post quota era. In the first phase of the partnership, investment is starting immediately at Kerry’s Listowel and Charleville sites in Ireland with the intention of doubling its local output of demineralised whey and infant formula base mix.

Beingmate’s move follows several similar arrangements and initiatives (please see Dairy Products China News Vol.5 October Issue, p14).

The trend is entirely predictable: after the 2008 melamine scandal and years of ongoing dairy and formula safety scares, an increasing number of consumers prefer dairy products produced overseas or based on raw materials from overseas. This situation has caused a marked pickup in demand for imported dairy commodities.

Competitive factors are also key, with the Chinese party often struggling or at some disadvantage in the formula market. The fierce competition from Yili is central to Mengniu’s decision to cooperate with Arla Foods, and similar rationales lay behind the moves to partnership from Synutra and Beingmate – both businesses’ performances have been mediocre in recent times. Bright Dairy is a relative newcomer in formula and so the deal with Synlait was a logical step up on the ladder.

The main targets for such deals are Oceania and Europe. Both regions are attractive in terms of their quality. Oceania scores in terms of logistics and pricing, whilst Europe offers the advantage of being the main source of demineralised whey products. Companies from both regions are regularly in the Chinese market meeting customers and trade.

The US is another key option but suffers by comparison on most of these points, despite its dairy industry’s strong capabilities in whey products. The US formula industry’s preference for the WPC/
lactose combination over demineralised whey does not position it well in the face of the Chinese preference for D70/D90. Although Euroserum delivered the first demineralised whey powder to Chinese formula producers, the key factor in establishing this preference was the New Zealand push to sell this simpler solution to the Chinese industry whilst it sought to focus on WPC manufacture for higher value applications. That decision also reflected the lack of consistency of the quality of WPC at the time, especially to infant formula standard. New Zealand later moved away from demineralization but the practice was established, and nowadays Chinese buyers also express concern over the consistency of lactose and WPC options. This background is one reason why so far the US role has been mainly in terms of investment – for instance in the cases of Modern Dairy, Feihe Dairy, Synutra, etc. Such considerations surely point to partnership opportunities in China for some of the South American processors, though to date there has been little evidence that they are ready to take them up.

Source: Dairy Products China News 1210

Content of Dairy Products China News 1210:
Cooperation between Chinese & Overseas Dairy Industries in Vogue
Sichuan Dairy Industry Development
New Standards for Powdered Beverages & Soy Milk/Drinks
New Concern Over Raw Milk Standard
Privatisation of Feihe Likely
Xiaoyangren Group to Launch Plant
Kangquan Dairy Pushes for Growth
Treasure of Plateau Invests in New Plant
Raw Milk Price Remains High
Industry Focus on Dairy Farming Continues
Flower Cow Milk Launches New Premium Milk
A2C to Launch Formula

Dairy Products China News, a monthly publication issued by CCM on the 30th/31st of every month, brings you the latest information on new market dynamics, company dynamics, new dairy products and consumption trend, new legislations and policies and raw milk supply dynamics that are shaping the market.

About CCM
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