China appetite driving dairy capacity expansion

[MELBOURNE] Growing demand for powdered milk formula among China's middle class and online direct distribution are driving major investments in processing capacity, the head of Australia's largest dairy producer Murray Goulburn said on Wednesday.

Murray Goulburn Unit Trust on Tuesday announced plans to build a A$280 million (S$288.58 million) formula processing factory in partnership with US company Mead Johnson Nutrition and Indonesia's Kalbe Nutritionals.

The first stage of the plant in the state of Victoria will be operational in early 2019 and will initially produce 45,000 tonnes of powder formula per year, Murray Goulburn said in a statement.

"In an already competitive Chinese market, this rise of a mobile middle-class, plus e-commerce gives disruptors new avenues to compete and win," said Murray Goulburn CEO Gary Helou.

Australia is seeking to dominate Asian markets for premium foods, as the country looks to rebalance its economy as a mining investment boom fades.

China represents 18 per cent of Australia's dairy export volume. Asia as a whole accounts for 78 per cent of the export market, valued at A$2.88 billion last year, according to Dairy Australia.

E-commerce platforms, such as Alibaba, import two-thirds of dairy products into China, according to Chinese market consultants The Silk Initiative. "We are going more and more direct and it will keep going until it reaches an equilibrium. Will it be sustainable in the long term? We don't know, but we welcome it," said Mr Helou.

Shares in Murray Goulburn have risen by 4 per cent since Monday.

REUTERS