Fonterra's head of India says it only needs to capture 4-5 per cent of that country's dairy market to become a $1 billion revenue business, something it could do within seven-to-ten years.

Sunil Sethi and three other executives from Fonterra's Indian joint venture today gave New Zealand media an update on the business, which is the cooperative's second attempt in the world's second-most populous nation.

They claim to be well-positioned to capitalise on a relatively young Indian population where 40 per cent are vegetarian and seek protein through milk products, and which is growing seven times faster than China.

Last year, Fonterra announced the joint venture with Future Group, the owner of four India-listed companies. That includes Future Consumer, which boasts over 2,000 retail outlets as well as manufacturing facilities.


Fonterra Future Dairy launched mid-range consumer brand Dreamery in July and in September introduced products for use in high-end restaurants under the Anchor Food Professionals brand.

Executives see opportunities as India's expanding population will eventually mean it has to import milk. Imported products attract prohibitive tariffs ranging from 50-60 per cent.

"As we go forward, in selective dairy categories, it should get better and some of our value-added categories is where I see positive outcomes for Fonterra," Sethi said.

The cost means Dreamery doesn't use New Zealand milk, but Fonterra contributes by giving its expertise and know-how to create a range of valued-added products which currently includes flavoured milk, yoghurt, cheese, and UHT cow's milk dubbed "toned" milk in India to indicate it is whole milk, .

The partnership enables Dreamery to boast "130 years of dairy" on its packaging and call its products "New Zealand designed."

Within Future Retail stores, Dreamery is already boasting 16 per cent market share within the flavoured milk category, 10 per cent share in curds, and 16 per cent in toned milk.

The joint venture does use New Zealand milk in products under the Anchor Food Professionals brand in what Fonterra executives dub a "lift and shift" play. The products launched so far are extra whipping cream, butter sheets, extra stretch mozzarella cheese and cream cheese.

These high-end products are able to extract margins which make it possible to be exported into India despite tariffs.


Sethi said this would make up 20 per cent of the JV's revenue as it matures, noting that it would eventually look beyond high-end restaurants and into other hospitality businesses in India.

He also indicated advanced nutrition products, delivered in powdered forms, will be the next premium play.

In September, Fonterra said its new strategy would focus on extracting value by bringing the focus squarely back to New Zealand and pulling back from its consumer brands. This has seen the sale of Tip-Top while other wholly-owned farm hubs in China and its Brazil joint venture are under review.

But Sethi sees expansion in India - where the venture has 36 staff - as being in line with Fonterra's goals. He said it was too early to give guidance on when the venture would be profitable, aside from saying "sooner rather than later."

"The way I would define the strategy is being focused on value. We started our India focus there and there is no change of strategy for us in India. Right from day one, we know that we cannot play a mindless volume game there."

He said that's why the venture focused on value-added products rather than commodity milk. It remained capital-light, although Sethi would not disclose how much has been invested.