China dairy insights – Aussie farmers on the moove
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China dairy insights – Aussie farmers on the 'moove'

May 6, 2015

Keen to experience first-hand the dynamics of the Chinese dairy market, 14 northern-Victorian dairy farmers trekked to China last month to get a taste of the real opportunities unfolding in the largest dairy market in the world.

Specialist agri lender Rabobank, in conjunction with Alta Genetics and the Rochester Dairy Business Network (DBN), helped to coordinate a week-long reconnaissance trip allowing Australian dairy farmers to follow the supply chain from Australia to China, witnessing for themselves the local nuances and developments occurring within the Chinese dairy sector.

Accompanying the Rochester DBN from Rabobank were senior dairy analyst Michael Harvey and Echuca branch manager Michael Napier. Mr Harvey described the tour as both “eye-opening” and “invaluable”.

“You can’t replace first-hand knowledge and time spent on the ground getting to know your market, the production systems, and the retail and consumer end,” Mr Harvey said.

“Being able to see each link in the supply chain in the world’s largest dairy import market – and Australia’s most important export market – provided incredible knowledge and understanding to bring home to Australia.”

Responsible for analysing the developments in key agricultural commodity markets such as the dairy sector, Mr Harvey keeps a close watch on the Chinese market and says one of Australia’s key challenges will ultimately be to produce enough milk to service the Chinese customers.

“We saw their retail shelves and they are stocked with so many international brands – whether you’re looking at the infant formula aisle or the liquid milk aisle – there are brands from all over the world all competing for a piece of the ‘China dairy pie’,” he said.

“If Australia doesn’t grow its production, then it won’t grow with its customers. We’ll be left behind because other countries’ brands will build market share because they’ve got more product and volume to reliably supply to that market.”

Putting a ‘made in Australia’ logo on Australian dairy products bound for China won’t be enough, Mr Harvey said.

“We need to get ahead of the trend on a branding front and a supply front – it’s mind-blowing to see how many other appealing international labels there are competing for market share on Chinese supermarket shelves,” he said.

“Marketing our production integrity and transparency is certainly an advantage for Australia’s dairy sector in terms of reputation but we cannot fall back in other categories such as branding and production.”

The tour included visits to Alta-Agricorp China, Nestle’s China operation, the Dairy Association of China, the Alta bull stud which houses mostly Australian-bred Holstein sires, Huaxia Dairy Company, Heilongjiang Wondersun Dairy Co. Ltd, Sinofarm and the Indonesian-owned Austasia Dairy Company. The expedition culminated at the World Dairy Exposition in Harbin City.

Echuca local, Mr Napier, had never been to China. When presented with the opportunity to join clients and the Rochester Dairy Business Network to travel to China and follow milk production post-farmgate, he “jumped at the chance”.

“Being based in northern Victoria, we are in a key dairy production hub – to get a better grasp of what is playing out in our major export market was always going to appeal to me so I could share that knowledge back here with our clients,” Mr Napier said.

“It became clear that the Chinese are taking milk production very seriously and producing more milk to meet their needs – and they are doing a good job of it,” Mr Napier said.

“This could mean that gains in China may not come that easily, given the increased focus of the Chinese on their dairy herd breeding and domestic milk production.

“For Australia, it’s not just a matter of sending milk and knowing it will sell. We need plenty of thought into how we sell and market our products there.”

Mr Napier said the group was certainly impressed with the quality of the dairy businesses they visited, realising that the Chinese market may not present the “golden road to prosperity”, as it is often optimistically deemed back in Australia.

“We saw [UHT] long-life milk selling for approximately AUD3.50-4.00 per litre and Chinese branded fresh milk was selling AUD8.80 per litre,” he said.

“You can see why the Chinese dairy farmers are ramping up production. There is plenty of incentive for the local farmers to work hard to make their own milk and reap the returns.”

Additionally, Australia has been a major supplier of [dairy] breeding stock to China, a trade which has been slowing in recent months.

Mr Napier said that it’s becoming clear that China may not want to continue to pay the prices they have been paying for imported dairy cattle.

“The Chinese dairy farmers want to diversify their sources of origin – they’re looking for other markets like Latin America for example,” he said.

“In addition to this, Chinese dairy operations are going to great lengths to rear their own heifers. We heard of one operation milking 20,000 cows using sexed semen which will result in a large number of heifers either being used to increase their milking operation or sold to other Chinese buyers. This is an important consideration for Australian dairy farmers who somewhat depend on the strength of this live export market.”

Despite the ambitions of the Chinese dairy sector, Mr Napier said productivity growth takes time.

“With a challenging logistical landscape – geographically, climatically and environmentally – China is unlikely to realise its self sufficiency production ambitions overnight,” he said.

“Most milk is produced in northern China near Harbin City, in a cooler region which poses many challenges when transporting fresh milk to key population areas such as Shanghai and Beijing. There is still a place for imported Australian milk yet.”

Rabobank Australia & New Zealand is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 115 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 41 countries, servicing the needs of approximately 10 million clients worldwide through a network of more than 1600 offices and branches. Rabobank Australia & New Zealand is one of Australasia's leading rural lenders and a significant provider of business and corporate banking and financial services to the region's food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.

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Denise Shaw
Media Relations
Rabobank Australia & New Zealand 
Phone: 02 8115 2744 or 0439 603 525