Push into SE Asia for dairy producer

By DITA DE BONI

New Zealand Dairy Foods may manufacture in Southeast Asia within two years to be more cost-effective in its most promising international market.

The move should not be at the expense of the company's New Zealand staff of around 800, it says.

The South Auckland-based dairy processor also wants to get into Japan and Taiwan, and is eagerly awaiting China's imminent entry into the World Trade Organisation, which should see tariffs of up to 30 per cent on imported products reduced.

Plans to establish stronger links to Asian markets come hot on the heels of its $6 million purchase of North Auckland's Puhoi Valley Cheeses three weeks ago.

International division general manager Kevin Bowler says while the Puhoi acquisition gives the company a toehold in Australia, Southeast Asian countries remain the company's main international focus. And despite a flood of huge food concerns eyeing up Asia, including Swiss-based Nestle and Australia's Bonlac, Mr Bowler says a New Zealand manufacturer can successfully foot it in the market on price and quality.

"It's a large sandpit and there is plenty of room for everyone," he says. "We are priced at a premium but feel confident we can sell our products with a reputation for unparalleled quality and New Zealand's clean, green image."

The Dairy Board generally handles all dairy exports from New Zealand. But Dairy Foods, which is half-owned by the Dairy Group manufacturing cooperative and half by 6500 individuals - mainly farmers - obtained licences from the board to export directly into Asia on the grounds that the area is not considered "priority" to the national body.

As a precursor to growing its $25 million to $30 million business in Asia, Dairy Foods has relocated its Asian business manager to the Philippines.

But challenges remain. Asians typically consume around 2 per cent as much liquid dairy product as New Zealanders, and the local Asian industries are gearing up to combat free trade.

The company has only just reported its first profit in Asia since the region's economic recession in 1997. "During a recession, there's not a lot you can do other than control costs, look at your investments and act conservatively. And that's what we did," says Mr Bowler.

The company elected to withdraw from some relationships in the region, while in Indonesia, its distributor collapsed. Business in Indonesia has recovered only in the past six months, says Mr Bowler.

But good fundamentals, even at the region's political faultline, underpin growth potential, he says.

"Large populations, indications that a middle class is in fact emerging, and the presence of multinationals in the area means a change in the structure of retailing. The growth of supermarkets has meant new categories of food, such as chilled [products], can be offered for the first time in some places."

And the company believes it is on track to take advantage of the more moneyed and more westernised consumer, pointing to results from the first third of the year as proof.

Sales of long-life milks (UHT) into other areas have increased by 50 per cent in the first four months of this year, and yoghurt into established markets such as Hong Kong and Singapore has also grown, by a fifth.