Fonterra to expand into premium dairy segment

Fonterra Group, a New Zealand-based dairy and nutrition multinational corporation, said it will expand its China business into premium categories to serve health-conscious consumers.

Fonterra executives said the company will focus on lower-tier cities and on enhancing innovations, to encourage consumption of cheese and butter at restaurants in China.

Peter McBride, chairman of Fonterra, who visited Beijing and Shanghai last week as part of a business delegation accompanying New Zealand Prime Minister Chris Hipkins, hailed "healthy" bilateral ties between the two sides.

He said: "We have benefited greatly from the healthy bilateral relationship between China and New Zealand. China is a vast market, a growing economy in pursuit of high-quality development, and provides ample opportunities to New Zealand companies, including Fonterra, in expanding our presence and success in this market."

Since the signing of a bilateral free trade agreement in 2008, New Zealand's dairy exports to China have grown from 6 percent of total exports to over 30 percent now.

Last year, the China-New Zealand Free Trade Agreement and the Regional Comprehensive Economic Partnership pact came into effect.

"The Chinese market is incredibly dynamic and is strategically important to Fonterra. The bilateral cooperation continues to create exciting new products to cater to the changing tastes of consumers in China," he said.

Fonterra's presence in China spans consumer brands, food and ingredients. The third-quarter results for its financial year 2022-23 showed its normalized earnings before interest and tax for the Chinese market were 342 million New Zealand dollars ($210 million), up 12 percent year-on-year on the back of reduced tariffs on liquid milk, butter and cheese under the New Zealand-China FTA, which took effect on Jan 1, 2022, the company said.

The company has now prioritized the introduction of high-quality nutritious dairy products from New Zealand into the China market. "Our strategy is to sell premium dairy to more people, online and in-store," McBride said.

Dairy consumption in China has grown significantly and is expected to continue to do so, said Teh-Han Chow, Fonterra Greater China CEO.

According to the China Agriculture Outlook 2023-32 published by the Ministry of Agriculture and Rural Affairs in May, the country's dairy sector has maintained a strong momentum of growth. The report forecasts dairy consumption in China to reach 60.98 million metric tons this year, up almost 4 percent year-on-year. The number is expected to climb to 79.02 tons by 2032 at average annual growth rate of 3.3 percent.

Chow said Chinese consumers have recognized the benefits of dairy in terms of not only nutrition but also taste.

"We are always looking at innovative ways of using dairy products in local cuisine such as cream cheese, tea macchiatos, cheese lollipops and even cheese dumplings. Other examples include our 'Cheese Pro' products, which are a mix of cream and cheese, and help customers to save time when making tea macchiatos," Chow said.

Such innovations and localization reflect Fonterra's research capabilities, he said. This year, Fonterra opened its fifth Fonterra Application Centre in China. The facility in Shenzhen, Guangdong province, follows those in Beijing, Shanghai, Chengdu in Sichuan province and Guangzhou in Guangdong province.

In response to the rising demand for health — and wellness-related products in China, Fonterra has developed new products like its new brand Nutiani, and probiotics and protein drinks launched last year, which seek to boost immunity and cognition.