Feeding Asia’s growing appetite for cheese

By Dairy News

THE RACE is on to win market share in Asia’s cheese market, with the region offering “a compelling growth opportunity” for Australian dairy exporters in the medium term, according to a recently released report.

Despite the robust growth outlook, the report, Asia’s fast-moving cheese markets: Australia’s race to win, by agribusiness banking specialist Rabobank, warns other exporting nations — with a much larger production base and export potential — are also looking to expand their presence in Asia.

There is evidence market competition is already increasing, but according to Rabobank senior dairy analyst Michael Harvey, it is set to intensify as leading cheese manufacturers in New Zealand, the United States and Europe invest in production capacity.

“Over the next three years, we will see this new processing capacity come on-line, which potentially will be more than sufficient to service the Asian markets,” Mr Harvey said.

With “a lot riding on Australia’s ability to succeed in the Asian cheese market”, Mr Harvey said the industry “must play to its strengths” by focusing on maintaining and growing market share in the high-end segments of the market.

Citing investment in dairy innovations and formulations as the way forward, he said tailored products could include improved functionality and desirability (to suit local cooking styles), clean label initiatives, nutritional demands (such as additive-free or sodium-reduced) and the development of snacks tailored to local consumers.

“But much of Australia’s ability to grow exports into the Asian region will hinge on the sustainable growth of our milk supply,” Mr Harvey said.

“And, while possible, growth prospects are up against hard constraints and seasonal impediments at the moment.”

Mr Harvey said Australia’s cheese production had grown in recent years, with close to half a billion dollars injected into the nation’s cheese processing capacity since 2015 to account for 54 per cent of total capital expenditure in dairy processing.

“And this bias towards cheese production doesn’t look like abating any time soon, with new processing capacity continuing to come on board, while the tight supply of milk is being prioritised for the higher growth and healthier margins offered by cheese and whey streams.

“This comes at a time when Asia’s cheese imports are also growing, with China notching up an annual cheese import growth rate of more than 20 per cent between 2012 and 2017.

“Meanwhile growth has been around 10 per cent per annum over the same period, in the ASEAN-5 countries of Indonesia, Malaysia, Thailand, the Philippines and Vietnam.”

Mr Harvey said growth had been slower in Japan and Korea (at an annual rate of two per cent), however these two countries, together, import three times more cheese than China (importing 340 000 tonnes in 2017, compared with China’s 100 000 tonnes).

“China is where the growth opportunities lie for Australian cheese exports, with China’s annual cheese imports set to potentially double by 2023,” he said.

Despite Australia’s proximity to the Asian market and its ability to compete on price, Mr Harvey said Australia had “no absolute competitive advantage” in supplying Asia’s cheese market.

“As such, if Australia is to succeed in its industry-wide Asian strategy for cheese and whey-derived nutritionals, it must to play to its strengths as an alternative supplier to other regions as well as a reliable supplier to customers demanding high-quality product.”

The report found the immediate priority for Australia to increase its cheese exports lies with the industry here sustainably increasing milk production and improving plant utilisation.

“While possible — and Rabobank forecasts a modest growth in milk supply over the next five years — there are many headwinds to achieving this, particularly in light of the current season,” the report said.