Fonterra CEO Miles Hurrell: China will pick up towards end of 2023

Miles Hurrell, chief executive of Fonterra. Photo / Supplied

Fonterra chief executive Miles Hurrell acknowledges that China has been slow to pick up after Covid, but he expects the co-op’s biggest market to improve towards the end of this year.

Hurrell told the Herald that China would soon be back to pre-pandemic levels, but said the market had some rebalancing of inventory to go through.

“China has taken a bit longer to bounce back - longer than I guess anyone would have liked,” Hurrell said. “But I don’t see the demand picture as being a major concern.”

As China - a significant dairy producer in its own right - endured very tight lockdowns in 2022, there was too much inventory in the market.

“Their milk production last year was up 7 per cent against soft demand, which left surplus inventory in the market at a time when the economy was starting to open up again,” said Hurrell.

“There is just a bit of an overhang that they need to work through.”

On the demand side, Fonterra was seeing a pick-up in its consumer business, through brands such as Anchor. And “in food service, we are starting to see consumers - the restaurant trade and the like - enter the market”.

However, in the market for ingredients - mainly milk powder - the conditions were soft due to that extra domestic inventory.

Hurrell said there had been a change in domestic Chinese farming - many large farms are now corporations or listed entities, with some attached to domestic brands.

“Therefore, the pain that domestic farmers will be under, potentially, is not quite the same as what’s being felt by the stand-alone farming operations.

“If the China milk price falls below the cost of production, you will ultimately see a contraction in supply at a time when, I think, China will continue to bounce back.

“At the moment we do see that coming - probably later in the year.”

With China being New Zealand’s biggest market, the comment is sometimes made that this country needs to diversify, particularly given the worsening diplomatic relations between China and the West.

Hurrell said that in the past, Fonterra had been able to deal with upsets in key markets.

“In some cases, there may be conversations about relations deteriorating, but I don’t think so.

“There are always challenges when you are dealing in international markets, and those are challenges that central government needs to lean into.

“From a commercial perspective, we have very strong relations right across the board and we are comfortable with that position.

“China will continue to be a very important market for us, and while we always look to see what opportunities exist - that’s why things like free trade agreements are vital - to enable us to go where the market dictates.”

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.