Opportunities and issues related to the export of dairy products to China Dr. Bozena Malmgren Tetra Pak, Lund, Sweden
Liquid products annual growth Comparison of world, developing countries and China Dairy 2,80% 3,70% 8,80% JNSD 4,30% 8,00% 12,00% Beer 2,20% 4,40% 5,60% Wine & spirits 2,90% 6,10% 7,70% Hot beverage 3,40% 4,50% 8,10% Water 6,20% 10,00% 20,00% Carbonated soft drinks 1,30% 0,20% 3,30% Source: Tetra Pak
Total dairy market growth in China Annual growth between 2012 2017 by category PRODUCT 2012 2017 An. growth Basic milk 10,2% 6,3% -0,2% Middle price milk 2,3% 2,5% 11,8% Premium milk 4,2% 6,0% 18,1% Kid s milk 7,0% 9,1% 15,8% Milk drinks 4,0% 5,2% 15,5% Flavoured milk 3,4% 3,0% 6,8% Yoghurt drinks 17,8% 13,4% 4,0% Ambient yoghurt 0,7% 1,8% 31,2% Yoghurt 7,9% 7,4% 8,6% Probiotic 1,9% 3,5% 24,0% Milk powder 3,7% 3,4% 8,0% Infant milk formula 19,9% 21,1% 11,4% Cheese 2,2% 2,4% 22,0% Ice cream 11,1% 10,4% 8,5% Source : McKinsey, Nielsen, Kantar panel
Total milk market growth in China Annual growth between 2012 2017 by category PRODUCT 2012 2017 An. growth Basic milk 10,2% 6,3% -0,2% Middle price milk 2,3% 2,5% 11,8% Premium milk 4,2% 6,0% 18,1% Kid s milk 7,0% 9,1% 15,8% Milk drinks 4,0% 5,2% 15,5% Flavoured milk 3,4% 3,0% 6,8% Yoghurt drinks 17,8% 13,4% 4,0% Ambient yoghurt 0,7% 1,8% 31,2% Yoghurt 7,9% 7,4% 8,6% Probiotic 1,9% 3,5% 24,0% Milk powder 3,7% 3,4% 8,0% Infant milk formula 19,9% 21,1% 11,4% Cheese 2,2% 2,4% 22,0% Ice cream 11,1% 10,4% 8,5% Source : McKinsey, Nielsen, Kantar panel
Lactic Acid Drinks Composition A mixture of skimmed milk powder, sugar and water acidified using e.g. lactic acid or citric acid Chinese LAD usually containing 0.7% protein per 100 ml or 21% of dairy ingredient BM/2012-11-01 / 5
Lactic Acid Drink concept Short cut to acidified products Milk powder Sugar Stabiliser Acid Water Tetra Pak High Shear Mixer LAD base concentrate Tetra Pak Indirect UHT unit Tetra Pak Aseptic Tank Tetra Pak A3/Flex
Lactic acid drink in China Affordable price is the key Yaun/litre 14 12 10 8 6 4 2 0 Whole milk Yoghurt LAD Source: Tetra Pak
Lactic acid drink Dominating beverage in China in litres LAD 31% White Milk 28% Baby and toddler Milk 24% Drinking Yoghurt 5% Flavoured Milk 12% Source: Compass Products and Packages 2010
Lactic acid drink Forecasted to continue in the future 12712 13816 14755 11508 10214 7283 7928 8835 3302 4580 5625 % CAGR 2007-2010 % CAGR 2010-2013 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Compass Products and Packages 2010
Total milk market growth in China Annual growth between 2012 2017 by category PRODUCT 2012 2017 An. growth Basic milk 10,2% 6,3% -0,2% Middle price milk 2,3% 2,5% 11,8% Premium milk 4,2% 6,0% 18,1% Kid s milk 7,0% 9,1% 15,8% Milk drinks 4,0% 5,2% 15,5% Flavoured milk 3,4% 3,0% 6,8% Yoghurt drinks 17,8% 13,4% 4,0% Ambient yoghurt 0,7% 1,8% 31,2% Yoghurt 7,9% 7,4% 8,6% Probiotic 1,9% 3,5% 24,0% Milk powder 3,7% 3,4% 8,0% Infant milk formula 19,9% 21,1% 11,4% Cheese 2,2% 2,4% 22,0% Ice cream 11,1% 10,4% 8,5% Source : McKinsey, Nielsen, Kantar panel
Total milk market growth in China Annual growth between 2012 2017 by category PRODUCT 2012 2017 An. growth Basic milk 10,2% 6,3% -0,2% Middle price milk 2,3% 2,5% 11,8% Premium milk 4,2% 6,0% 18,1% Kid s milk 7,0% 9,1% 15,8% Milk drinks 4,0% 5,2% 15,5% Flavoured milk 3,4% 3,0% 6,8% Yoghurt drinks 17,8% 13,4% 4,0% Ambient yoghurt 0,7% 1,8% 31,2% Yoghurt 7,9% 7,4% 8,6% Probiotic 1,9% 3,5% 24,0% Milk powder 3,7% 3,4% 8,0% Infant milk formula 19,9% 21,1% 11,4% Cheese 2,2% 2,4% 22,0% Ice cream 11,1% 10,4% 8,5% Source : McKinsey, Nielsen, Kantar panel
Total milk market growth in China Annual growth between 2012 2017 by category PRODUCT 20112 2017 An. growth Basic milk 10,2% 6,3% -0,2% Middle price milk 2,3% 2,5% 11,8% Premium milk 4,2% 6,0% 18,1% Kid s milk 7,0% 9,1% 15,8% Milk drinks 4,0% 5,2% 15,5% Flavoured milk 3,4% 3,0% 6,8% Yoghurt drinks 17,8% 13,4% 4,0% Ambient yoghurt 0,7% 1,8% 31,2% Yoghurt 7,9% 7,4% 8,6% Probiotic 1,9% 3,5% 24,0% Milk powder 3,7% 3,4% -8,0% Infant milk formula 19,9% 21,1% 11,4% Cheese 2,2% 2,4% 22,0% Ice cream 11,1% 10,4% -8,5% Source : McKinsey, Nielsen, Kantar panel
Total Chinese dairy market Growth between 2012 and 2017 61% Hundred millions RMB 4000 3500 3000 2500 2000 1500 1000 500 0 2012 2017 Source : McKinsey, Nielsen, Kantar panel
Liquid dairy products market in China Centralization Mengniu Yili Wahaha Yinlu Bright Others 30,0% 22,2% 6,0% 24,3% 5,0% 12,5%
Global share of top 10 producers of liquid dairy products Growth 2012 2015 Nestlé Danone Yili Mengniu Lactalis Mead Johnson Friesland Yakult Honsha Abbot labs Wahaha 2012 2015 3,% 2,8% 2,7% 2,1% 2,6% 2,% 2,3% 1,9% 1,8% 1,4% 1,6% 1,4% 1,3% 3,5% 4,1% 4,4% 4,8% 5,4% 8,6% 8,8%
Liquid dairy market growth in China Growth between 2013 2015 123776 132055 Growth in value 21% 109023 Volume in mil RMB Value in mil litres 9772 9901 9906 Growth in volume 1% 2013 2014 2015 Source: McKinsey, Nielsen, Kantar panel
Liquid dairy products market in China Split between ambient and chilled distribution 2015 3% 15% 28% 35% 10% 9% UHT milk UHT flavoured milk UHT milk drinks & others LAD Chilled milk Yoghurt
Liquid dairy products in China Percentage of Volume of products packed in different sizes in 2013 7,4% > 600 ml 361-600 ml 15,0% 251-360 ml 201-250 ml 151-200 ml < 150 ml 51,0% 15,0% 9,0% Source: Compass
UHT milk imported to China Examples Security Level Initials/YYYY-MM-DD / 19
Chinese market Another way of buying liquid dairy products Carton portion packs >40% buy in internet shops
Imported Liquid Dairy Products
Import of liquid milk to China Volumes for last 15 years 10K tons 45 40 35 30 25 20 Melamine crises Raw milk shortage 32.02 39.75 15 10 5 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 1 Nov
UHT milk market in China Prices of local and imported UHT milk UHT white milk Package Importer price USD / litre incl. VAT On-shelf price USD / litre Local Premium 250 ml $ 2,24 $ 3,17 Regular 250 ml $ 1,32 $ 1,72 Regular 1l $ 1,16 $ 1,40 Imported Branded 1l $ 1,42 $ 1,85 - $ 1,97 Private label 1l $ 0,92 $ 1,13 - $ 1,21
Import of UHT milk to China Overview of exporters and Country Shares 1. Europe more than 30 producers 2. Australia & New Zealand more than 15 producers 3. USA less than 5 suppliers 4. Others Korea, Uruguay 19,0% 5,5% 15,5% 3,2% 5,4% Germany France 43,7% Australia New Zealand Republic of Korea USA Others 7,7%
UHT milk import to China Top 10 brands 1. Oldenburger Germany 2. Devondale Australia 3. Country Goodness New Zealand 4. Lactel France 5. Aka Germany 6. Suki Germany 7. Fine Food Germany 8. Meadow Fresh New Zealand 9. MUH Germany 10. Binggrae Republic of Korea
Logistics from the producer to the E-shop in China The total trip from Oceania is 100 and from US & Europe 130 days 15 days 15 days 15 day(asia+oceania) 45 days (EU, US) 15 days 40 days Oversea production Procurement Order prepare Shipping Custom claim Inspection/ Quanrantine earance Ready to sell
Logistics from the producer to the E-shop in China Transportation from Europe
Logistics from the producer to the E-shop in China Transportation from Europe Recorder Source: Xerox Corporation Security Level Initials/YYYY-MM-DD / 28
Logistics from the producer to the E-shop in China Transportation from Europe Container temperature by location Source: Xerox Corporation Security Level Initials/YYYY-MM-DD / 29
Logistics from the producer to the E-shop in China Transportation from Europe Security Level Initials/YYYY-MM-DD / 30
Quality of the UHT milk imported to China Legislation Ultra high temperature, UHT Processing methods for the effective killing of microorganisms and inhibition of thermophilic spores, heating in continuous flow conditions to at least 132 C and retaining the temperature for a very short time. UHT milk Liquid product produced with raw milk as the raw material, added with or without reconstituted milk, and passing UHT treatment, aseptic filling and other processes. After UHT sterilization treatment, the lactulose content of milk should be less than 600 mg/l. 132 C for a very short time Lactulose less than 600 mg/l
Quality of the UHT milk imported to China Legislation distinguishing of recombined milk (powder addition) UHT milk Where L < 600.0 mg/l, FT > 190.0 mg/100g of protein L < 600.0 mg/l, FT > 190.0 mg/100g of protein If lactulose : furosine R < 1.80, it is judged that the sample contains reconstituted milk. R < 1.80
Logistics from the producer to the E-shop in China The total trip from Oceania is 100 and from US & Europe 130 days 15 days 15 days 15 day(asia+oceania) 45 days (EU, US) 15 days 40 days Oversea production Procurement Order prepare Shipping Custom claim Inspection/ Quanrantine earance Ready to sell
UHT milk Quality demands UHT milk should remain stable and keep a good commercial value during the intended shelf life Typical quality defects are related to: Fat separation Sedimentation Gelation
UHT milk sample 3,6 %Fat Fat separation issues Results of test after storage at 30 C Three months old sample from China Internal LEN/2013-02-07
Stability of UHT milk with 3,5% fat content Storage at 20 C Security Level Initials/YYYY-MM-DD / 36
UHT milk imported to China Consumer percepition EU US Oceania Security Level Initials/YYYY-MM-DD / 37
Information from some distributors on the situation at the moment 50% of distributors are not making any money 30% is making just a balance Only 20% are making money Distributors are preferring volumes afraid of left overs They go more to internet market to reduce their costs Local milk prices are going down and imported milk has to compete The age on the imported milk is against it 6-9 months shelf life of the domestic milk 9-12 months on the imported Security Level Initials/YYYY-MM-DD / 38
UHT milk market Income per capita Source: National bureau of Statistics China, 2012 Security Level Initials/YYYY-MM-DD / 39