The China-Australia Free Trade Agreement (FTA ) has been described as a "game changer" for Australia’s $13 billion dairy industry.
The removal of tariffs and the resulting expanded market access will open the way for a wide range of Australian dairy exports into China - a market that represents 30 per cent of global dairy imports and is the world’s largest dairy importing country.
Dairy Connect, which represents the NSW dairy industry, says the FTA will go a long way in ensuring growth and a positive future for dairy.
"For the first time since deregulation, dairy farmers will be empowered and in a position to choose which markets they sell their milk into,” says Dairy Connect CEO Mike Logan.
Judith Swales, managing director of Fonterra Australia, says the FTA will bring Australian milk closer to the Chinese consumer.
"We know that more milk is required to satisfy this demand and that all products in all forms are possible,” she says. “This is a good time to be in dairy. The FTA will be a game changer for Australian dairy."
Rabobank, however, warns that ongoing growth in import requirements by Chinese and wider Asian dairy companies shouldn’t be taken for granted.
In a recently-released report, Magnetic milk - the lure of dairy investment down under, the agribusiness banking group says though spectacular rates in growth have attracted significant investment both within Oceania and further afield as companies recognise the opportunity, a level of caution is required.
In the report, senior dairy analyst Michael Harvey specifically points to dairy exporters looking to dairy markets in China, especially those in the nutritional powders and liquid milk markets.
“Import volume growth is expected to expand, but the rate of growth will be slower over the medium-term as the dairy market matures and retail price points challenge consumers who are facing lower rates of income growth,” he says.
“At the same time, there is significant investment in capacity in many parts of the world generating intense competition and the risk of oversupply.
“Complicating matters, regulation has been tightened, particularly in the Chinese infant formula category, and is still proving unpredictable.”
Harvey says that looking forward, companies both inside and outside of the Asian region will continue to deepen market relationships and boost cooperation.
Against this evolving backdrop, a number of local companies have already begun forging large contracts with Chinese companies.
Here's a summary of some of these deals.
BRIGHT FUTURE FOR PACTUM
Pactum Dairy Group (PDG), part of the Freedom Foods Group, announced an agreement last April to supply premium long life dairy milk to Bright Dairy, one of China's largest dairy companies.
Pactum is providing long term supply of value added dairy milk products in UHT (long life) packaging formats.
Bright Dairy is one of China's largest dairy companies, and it makes fresh milk, yoghurt, cheese and powder products. It sells these products under six well-known value-added brands, including Excellence Plus and Momchilovtsi, an iconic fermented UHT yoghurt drink in China.
These brands are distributed all over China through 400 distributors and in excess of 400,000 sales outlets, and its total sales in the 2013 financial year were $US2.6 billion.
NORCO GETS FRESH
In May last year, Northern NSW Dairy Co-operative Norco announced plans to send fresh milk to China in seven days thanks to new fast-tracked quarantine arrangements in China and Australia.
International export consulting company Peloris Global Sourcing (PGS) and Chinese officials jointly developed quality assurance protocols that have now been officially sanctioned in China.
Usually it takes up to 21 days to ship fresh milk, but under the new arrangements, Norco was able to trial shipment of almost 1000 litres of fresh milk with a view to shipping a potential 20 million litres of fresh milk to China over 12 months.
FONTERRA'S NEW FORMULA
Fonterra announced plans in September to invest $550 million in a leading Chinese infant formula company, Beingmate.
The partnership sees the NZ dairy company exchanging a 51 per cent majority share of its milk powder factory at Gippsland in Victoria for a 20 per cent share of the Chinese company.
Fonterra Australia MD, Judith Swales, described the deal as a “game changer for the dairy industry in Australia”.
MINING THE BOOM
Mining billionaire, Gina Rinehart, announced plans to plough $500 million into the Chinese infant formula market through her dairy venture, Hope Dairies, in November.
Hope Dairies will acquire about 5000 hectares of farmland in Queensland's south to produce about 70 to 75 per cent of its own milk, and will build a processing plant in Mary Valley with production to begin in the second half of 2016.
The venture aims to produce as much as 30,000 tonnes of formula a year, and the new facility will also process UHT milk.
NEW HOPE FOR FREEDOM FOODS
Free-from food manufacturer Freedom Foods and its largest shareholder, construction company, Perich Group, signed an MOU on a deal worth $500 million with a Chinese agricultural company, New Hope Group in November.
As part of the deal, New Hope will set up an investment fund in exchange for a long term UHT milk supply, which would include the development of large scale dairy farms, and will market and distribute products into China through New Hope Dairy.
The partnership will own farmland and build a facility in southeast Queensland.
