Fonterra looks to expand its Africa footprint
Fonterra is exporting into 36 of 54 African countries and aims to expand its footprint as demand grows across the region.
With a population of over 1.2 billion, "Africa is one of the fastest growing markets of dairy imports and a significant opportunity, not just for Fonterra but for the New Zealand dairy industry," Josh Hosking, sales director for Africa NZMP - the cooperative's global dairy ingredients brand - told BusinessDesk in an interview.
"The increasing incomes and population growth of Africa are really driving the middle class of African consumers and those consumers are getting more and more sophisticated and demanding higher quality foods. Dairy nutrition is a key cornerstone to that," he said.
The NZMP portfolio includes ingredients such as whole milk powder, skim milk powder, proteins, cheese and dairy fat. Algeria - a key market for NZMP - is New Zealand's third largest export market for dairy products and the second largest importer of milk powder in the entire world, he said.
New Zealand's exports into Africa were around $1.9 billion in 2016, with $1.6 billion of that dairy. Dairy exports into Africa accounted for around 14 percent of New Zealand's dairy exports, up from 10 percent around 10 years ago.
"To give you an idea, the amount of New Zealand dairy ingredients we import into Africa is equivalent to the entire milk solid pool of the Bay of Plenty region," said Hosking.
While there is domestic dairy farming in many countries, Hosking said there is "always going to be a significant delta between production and consumption and that's very much where Fonterra and the New Zealand dairy industry can work with customers to fill that gap."
He said shipping product into Africa was more viable than developing local milk pools, in particular given the seasonal nature of the industry.
One of NZMP's biggest challenges, however, is distance, he said. In some cases, it can take up to three months to get dairy products from a port in New Zealand into the hands of one of its customers. In a bid to compete with Europe, given you can "practically swim to Algeria from Spain or Morocco" NZMP uses Dubai as a warehousing hub, he said.
Key for NZMP's success has been innovation, said Hosking. It has focused on drilling down into what its customers want and then looking to fill those needs. In Algeria, for example, there is high demand for milk powder that dissolves quickly. The end result, after more than 3,000 tests, was the so-called Gold Instant Whole Milk Power, a product with a fast, easy reconstitution. "It's really important for a brand owner to have some differentiation in the market. Here is a product that will dissolve and disperse easily in any format," he said.
NZMP has also developed milk power for use in artisanal yoghurt while in Egypt, where butter is hawked in open-air markets in temperatures that hover in the high 40s. Significant effort has focused on ensuring NZMP's butter retains its functionality. "It's not melting, it's not liquid in those markets," he said.
"It's very important from a business continuity standpoint that we are looking to grow trade and dairy ingredients and innovation in those markets, much more broadly than with a single or two market focus," he said.
Products are developed at Fonterra's research and development facility in Palmerston North, where "our PhDs are crawling over every aspect of milk," he said. "We then go to our customers in-market and provide them with products to touch, taste, feel and trial at their manufacturing sites."
NZMP is seeing significant growth in categories such as cheese, UHT milk and consumer milk powders throughout Africa. According to Hosking, in sub-Saharan African alone the consumer milk powder category is expected to grow at 13 percent between now and 2019 "so it's really important that we are not just defending our leading market position in supplying ingredients to those brand owners, but that we are innovating and adapting to those customer needs," he said.
Thousands of languages and getting a handle on dozens of regulatory regimes as well as geopolitics has also thrown up challenges, with some countries difficult to even visit, particularly in Central Africa. There are also fiscal challenges and while "that volatility has gotten better over the years, certainly it creates challenges to do business in Africa," he said.
Hosking said a key challenge over the past 12 to 18 months has been things like the depreciation of local currencies, in countries like Nigeria and Egypt, for example. "We make sure we are working very much hand-in-hand with our customers to try and mitigate as much of that risk as much as possible."
NZMP has offices in Algeria, Nigeria and Egypt and a joint venture in South Africa. Its aim is to "make sure we are not just learning about challenging situations through our customers but also through direct relationships we have in those markets," he said. NZMP aims to interact with banks, port authorities, and veterinary authorities among others on any challenges around imports or regulatory changes.