Agribusiness Report: Fonterra and Zespri - Views from the ground in China

Fonterra Greater China chief executive Teh-han Chow at an importer expo in China last November.

China is a major market for New Zealand's exports and for our biggest agri exporters it is one of their most important strategic markets

Fonterra's Greater China CEO Teh-Han Chow and Zespri's chief executive officer Dan Mathieson share with Fran O'Sullivan some of their on-the-ground insights from China where the CEOs' ability to travel frequently over the past year has been curtailed by Covid.

Herald: How has the last year been for each of you leading operations in China during the Covid-19 pandemic:

Dan Mathieson: When I started with Zespri back in the end of 2002, only about 2 per cent of our total sales went to China. It is now over 20 per cent by volume. China has been a very important part of our growth, alongside the development that has been going on in other markets across Europe, Japan and in some exciting new markets like Vietnam and the USA.

We have seen increasing demand for kiwifruit, and in part that has been bolstered by the focus on health from consumers through the pandemic which has been very favourable for Zespri.

One of the partnerships that has been very successful for us in China has been our fruit retailing platform Pagoda — one of the largest fruit shop chains with over 5000 stores. That close partnership allowed us to bring our SunGold and Zespri Green kiwifruit quickly into market. Pagoda told us that SunGold was the only fruit category to grow both in terms of volume and value during the pandemic.

We estimate that last year around 25 per cent of our Zespri fruit was sold online — up from 18 per cent the year prior. It's an area that we are going to continue to focus on and build in the post-pandemic era. It is not unimaginable to think that even in the next few years more than 50 per cent of our kiwifruit will be sold through online channels.

Over the last 20 years, we have made sure we have very strong relationships and trust at the critical points of our supply chain, so that we can have discussions and clarify issues quickly and build goodwill. Engagement in general is important around the world but it is very critical in China — building relationships and wide networks, engaging constructively and investing in being present.

Teh-han Chow: China is a very important market for Fonterra. About a third of our New Zealand farmers' milk is sold into cities in China, either as ingredients, food service applications or consumer products. China is also where a lot of Fonterra's innovation expertise comes to life.

Like all markets around the world, we have been impacted by Covid-19. Our last 12 months have looked a lot different than what we originally intended.

When Covid came and strict government restrictions were introduced our food service was hit the hardest — all the restaurants were closed. But we saw a very quick recovery — it was very V shaped, and by April things were very close to normal. There was also very little impact on our ingredients business throughout, which helped us to manage through the impact. For consumers, we saw a big swing from offline to online.

But what we also learned during this time in Covid is that a lot of trends have been accelerated, which in turn has seen our plans accelerate.

Over the past 12 months we have seen our ability to flex, bringing different product categories depending on demand into the market and responding quickly to our changing customer needs. This has kept our business not only stable but thriving.

We have been very market-led and customer centric, which is part of the core to our strategy. This approach allows us to stay closer to our customers and meant that even in Covid we were in constant communication with our customers, trying to understand their needs and expectations — especially as they evolve.

Herald: What has it been like navigating through Covid-19 within China with the twin pressure of keeping your markets operating and your staff safe?

Dan Mathieson: China was the first country in the world to go through Covid, so it was a little bit of learning as we went there. We gave our leadership in China full autonomy and responsibility to look after their people first, as you can imagine that is the number one priority we set and everything else was second.

We quickly moved people to work from home. We closed the office, and then we were able to feed back in real time how people were being supported in China. As the pandemic evolved around the world, we were able to take those learnings and support our people in other countries in the best way possible. We learnt a lot from China, and that has helped our other markets to operate the best they way can in the pandemic environment.

Teh-han Chow: Very similar for us, too, in terms of putting people first. At that point in time we had about 1700 people on the ground in China. As it happened, I was out of China when the outbreak occurred, so I rushed back in early February to be with them — leaving my family behind. It was important to be with our teams and immediately become very agile, changing the way we work. The response from our team was fabulous — people were up to the challenge. We made sure everyone was safe, provided personal protection equipment and enhanced processes across our farms where we had to continue operating 24/7.

Herald: The Covid-19 pandemic has resulted in an impact on the regulatory environment in China. How are both of you navigating that?

Teh-han Chow: We are constantly seeing the regulatory environment evolve — especially across the infant formula space. Given the crisis that China went through over a decade ago (melamine disaster) there is still a concern to make sure that food safety is top of mind. We continue to see regulatory policies that are strengthening consumers' right to get high quality and safe food.

Dan Mathieson: Obviously looking after Chinese consumers is paramount for the Chinese Government. They are taking a very cautious approach to food being imported into China. They are asking for extra checks, extra transparency around data, and looking at the track record of your performance and history bringing food across the border. Those companies that have done it well for a long time have been shown a lot of good will by the Chinese authorities.

We're in close communication with customs as to any changes coming up, and they've been well-flagged to us so that we can make the necessary changes back in New Zealand should we need to.

Herald: How would you describe the contribution of the Fonterra and Zespri brands in China?

Teh-han Chow: We are a global nutrition company, and we are interested in making sure that we're able to contribute to the nutrition of consumers in China. It is not just your basic dairy nutrition, it's about advanced nutrition — products for infants, functional nutrition — I think these are all areas we have a good opportunity to contribute to the development of consumer benefit in China.

Dan Mathieson: I think wellbeing would be the one word. There is the goodness our kiwifruit can provide to consumers, but it is broader than that. It is about continuing to grow China in a very positive and healthy way, so that all the partners across our ecosystem are continuing to do well, as we continue to do well in China.

And that's obviously very similar to what Teh-Han just talked about the goodness that our kiwifruit can provide through to consumers, but it's actually broader than that, it's about continuing to grow in China in a very positive and healthy way, so that all of the partners across our ecosystem are continuing to do well, as we continue to do well in China. That is fundamental to our success — if we are unable to demonstrate that, then I think our continued growth in China will be short-lived.

Herald: How does your deep e-commerce experience in China give you a head start in other geographies where e-commerce growth has also accelerated due to Covid?

Dan Mathieson: We are seeing that around the world now take off. It used to be that China was well ahead of all the other markets; Korea was a distant second and then the rest of the world was still very much in its infancy — particularly when it came to perishable products being sold through e-commerce, and fruit a part of that.

What we have seen through the pandemic in the last 12 months is an acceleration unanimously across the board of all markets. We have been able to share those learnings around how we market online and how we sell and promote online to our other markets. That has helped us develop our online sales channels and marketing approach very quickly. As a result, we are seeing an acceleration of e-commerce sales across the full spectrum of markets, and we expect that to continue.

From an interview with Fran O'Sullivan at the China Business Summit.