Over the past three years Chinese consumers’ awareness in sustainable products and climate change has increased dramatically and Fonterra Co-operative Group is poised to take advantage.
“The thing with China,” says Fonterra Greater China chief executive Teh-han Chow, “is that change can happen quickly and is fast moving.”
As an example of rapid change, electric vehicles made up a quarter of all passenger cars sold in China last year, far ahead of United States’ one in seven, and Europe’s one in eight. Estimates are that electric vehicle penetration in China, the world’s second-largest economy, will be 90 per cent by 2030.
Including plug-in hybrids, China’s clean-car sales hit 5.67 million last year, more than half of all global deliveries. The country will account for about 60 per cent of the world’s 14.1 million new passenger electric vehicle sales this year.
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China has the largest charging network in the world, adding 649,000 public chargers last year, which more is more than 70 per cent of all installations globally that year.
President Xi Jinping surprised the United Nations General Assembly in September 2020 announcing in a videolink that China will aim to hit peak carbon emissions before 2030 and be carbon neutral by 2060.
The announcement was seen as a significant step in the fight against climate change, with China, the world’s biggest source of carbon dioxide, responsible for around 28 per cent of global emissions.
Chow says before 2020 there was very little awareness of what carbon emissions and neutrality - a balance between emitting and absorbing carbon - meant.
“As soon as the announcement was made, everyone became aware. The searches on Baidu [similar to Google] climbed like steps on a ladder; before 2020 there was nothing.
“What the government sets as important, corporations and citizens will follow. That’s the China change.
“Since 2020 it’s been an evolution of educating consumers about sustainability and carbon emissions.”
The upshot, says Chow, is consumers are willing to pay for sustainability and focus on the benefits for them, in terms of health and wellbeing.
“As a producer and supplier, we have to communicate a message of sustainability that customers and consumers are able to understand. New Zealand has a beautiful grass-fed farming system and we can describe the benefit
“New Zealand is one of the most emissions-efficient producer of milk in the world — its carbon footprint is a third of the global average. We can make a very good proposition on an organic farming system that is free from preservatives, hormones and pesticides.
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“This resonates well with the consumer.”
Greater China sustainability survey
Recently, Fonterra ran a Greater China Sustainability study surveying 180 businesses and more than 6000 consumers.
The research found that consumers consider brands that talk about their sustainability or have sustainable products and activities as trustworthy and premium.
Consumers trust brands that do not solely act based on profits and premium products have the resources to do more for the environment.
Nearly all respondents (98 per cent) said they are willing to buy sustainable goods, 61 per cent have purchased at least once and 23 per cent are early adopters who hold strong beliefs and value sustainable products — including recyclable packaging.
Chow says the research findings gave “us more confidence that consumers are willing to pay for desirable sustainable products and we will focus on the areas that resonated more with customers — such as organic and grass-fed products. New Zealand’s provenance is linked to sustainability and the general imagery of the country being green.”
Sustainability strategy
Fonterra, the country’s biggest company and largest importer of dairy products into China, is flying the flag for sustainability and climate change.
Last month Fonterra increased its decarbonisation targets to a 50 per cent absolute reduction of gas emissions from manufacturing and supply chain operations by 2030, up from a 30 per cent reduction using 2018 as a baseline.
Fonterra confirmed its ambition to be net zero by 2050. The co-operative will soon be announcing its on-farm emissions reduction target.
Fonterra chief executive Miles Hurrell said achieving the new targets will require energy efficiency improvements and fuel switching to renewable energy source activities across its milk collection fleets and manufacturing sites. The co-operative plans to be out of coal use at its six manufacturing sites by 2037, and it is assessing biomass, electrification and heat pump technology at the Clandeboye and Edendale plants.
Hurrell said Fonterra would spend $1 billion in sustainability initiatives over the next decade, doubling innovation efforts to solve methane challenges and maintain the relative carbon footprint against Northern Hemisphere farming systems.
“Doing so will allow us to invest in our brands to showcase the New Zealand sustainable nutrition story. This will put us in a position to further grow food service and consumer channels in Asia-Pacific markets and gain more value through our ingredients channel by helping customers meet their own sustainability goals,” Hurrell said.
Chow says Fonterra is working hard on its sustainability message.
“If a consumer has a glass of New Zealand milk, it has less carbon footprint than milk from another organisation.
“We are here to help customers meet their environmental goals, and we have the opportunity and capability to advance our Pure New Zealand, low pollution and grass-fed claims.”
He says Fonterra is working with customers to establish a net zero farm in New Zealand as a role model for sustainability. As a result of the research findings, Chow says Fonterra is happy to adjust its portfolio offering and meet changing consumer needs. “They evolve very quickly and we have to work hard to meet those evolving changes.”
He indicated Fonterra would increase its supply of organic UHT Milk with one leading retailer, which is forecasting a doubling in sales over the next year. “We will be looking at other opportunities for organic products.”
Fonterra has applied to introducing a new probiotic strain to the Chinese market, and is looking to launch two new UHT cream blends, and a new Anlene product.
Food service in China has become a success story for Fonterra — in the third quarter sales increased $55m to $229m out of the group total of $297m.
“We have a mixed bag of customers. Some have achieved record quarterly earnings and others have gone into bankruptcy — they didn’t survive Covid,” says Chow.
“We are focusing at the premium end and working with customers on innovative applications from beverages to baking, dining channels and Chinese food.
“You don’t find a lot of dairy in traditional Chinese cuisine.”
Chow says the numbers show the Chinese economy has slowed, just seven months out of Covid restrictions, but “if you walk the streets, you don’t feel that”.
“There’s the hustle and bustle and consumers are alive and well.
“They went through three years of hard Covid measures and are now feeling relief. There’s energy coming from that.
“The dairy demand has not dropped. It has slowed but it continues to increase. Fonterra has operated in China for 50 years and continues a strong, relentless, persistent proposition of core products and categories that lead to success.”
● Fonterra is an advertising sponsor of the Herald’s Agribusiness and Trade report.
