Turning 'em on to milk in Taipei

By LIAM DANN


On a Taiwan-bound plane packed with New Zealand Chinese and students returning home for the holidays, the cabin staff are busy with the drinks trolley.

One beverage in particular is proving popular. It's not New Zealand chardonnay or mineral water ... it's milk.

From young children to middle-aged businessmen, the Chinese passengers are quaffing the white stuff with a passion you would never see in New Zealanders raised on it.

In Asia, dairy products have the advantage of being relatively new and therefore exciting. Products like fresh milk are often consumed purely as a health supplement.

No wonder, then, that Fonterra is working hard to cash in on this rapidly growing market.

Back in Taiwan dairy products - and fresh dairy products in particular - are not quite so popular yet.

Although it is already among Fonterra's leading markets, most of its sales are in milk powder.

In 2002 Taiwan imported milk powder worth $145 million.

NZ Milk faces a big task to expand the cheese and butter market, but it has a strong ally in local joint venture partner New Young Dairy.

New Young general manager James Lin says his Taiwanese staff enjoy reporting to a head office in New Zealand.

"There is a big difference between New Zealanders and other foreigners like the Americans," he says. "Kiwis are more friendly. They understand the culture here. They are not forcing us to do what they think."

Fonterra tends to rely on the local operation rather than imposing its own formula, he says.

Lin has been working for Fonterra (and before that the Dairy Board) for 10 years.

New Zealand's relationship with New Young goes back 20 years.

A photo taken to celebrate the beginning of the partnership in 1983 adorns the wall in the Taipei office.

Consequently, a fresh-faced Lockwood Smith and gaggle of long-haired, sideburned Dairy Board members in brown suits present visitors with a slightly disturbing image of the typical New Zealander.

New Young has 60 staff, about 38 in the Taipei office.

Their job is to market and sell Anchor-branded products to the food service industry.

Fonterra has two other Taiwanese joint ventures - one handling milk powder, the other consumer products.

New Young is a very profitable operation, Lin says. It generates about $75 million in revenue a year and has a 60 per cent market share in the Taiwan butter market, 50 per cent in cheese and 38 per cent in cream.

Its biggest constraint is supply.

Sourcing enough product from New Zealand is difficult at certain times of the year, he says.

But right now it is peak season, so business is booming.

In the food services sector alone Taiwanese dairy consumption is growing at a rate of 6 to 8 per cent a year, Lin says.

Most of the consumers are used to American-style processed cheese. More companies are trying to import natural cheese, but volumes are quite small - about 100 to 150 tonnes a year, he says.

New Young is concentrating on Mozzarella and cream cheese.

"These two kinds of cheese are much easier for our bakery people to use," Lin says. "In pizza and bakery and consumer channels they will be the fastest-growing products."

Despite supply constraints, Lin hopes to add $20 million to annual revenue in the next three years.

He also plans to develop the fresh milk, yoghurt and cheese market.

Customers needs to be educated about fresh products, he says.

"In Taiwan the definition of fresh milk is quite confused," he says. "Ninety per cent of consumers don't know they are drinking recombined [UHD] milk."

Another barrier is the short shelf life of fresh products. But Lin says the life of fresh milk can now be extended for 45 days.

That would give his company nearly one month to sell it locally.

"So there is a big opportunity."

Lin is talking to NZ Milk Far East (Fonterra's consumer products company in Taiwan) about the possibility of working together on the project.

"New Zealand fresh milk would be popular in Taiwan," he says. "But the flavour is quite different."

To overcome that and the fact that it would cost more than local milk, it would need to be heavily marketed as a healthy premium product.

New Young is not so good at that kind of marketing so would need to work with Far East, he says.

Trading on New Zealand's image in Taiwan is not too difficult, he says.

"Ten years ago only a few people knew about New Zealand, but now many people have been there.

"Everyone understands New Zealand is beautiful, clean and green ... Whatever people think about New Zealand is what they will think about the dairy products."

Growing market

Dairy export to Taiwan 2002:

Milk powders: $145 million.

Butter: $30.1 million.

Cheese: $28.1 million.

* Fonterra exports about 45,000 metric tonnes of product to Taiwan and has 230 staff there in three joint-venture companies.

* Liam Dann travelled to Taiwan as a guest of the Taiwanese Government.