Australia & New Zealand face major dairy export opportunities

02 May 2019 Consultancy.com.au

Australia and New Zealand face major dairy export opportunities in the coming decade, according to a new report by McKinsey & Company in collaboration with the International Dairy Foods Association (IDFA). 

The study found that there is a significant mismatch between global production and demand. The United States, for example, already has a significant surplus of dairy products, a total that will more than double by 2027. The European Union and Australia and New Zealand have an even larger surplus of dairy production, meaning that they will need to ensure that their milk and milk-based products are exported to regions which face dairy deficits.

Developing markets Africa and Asia are the two continents with the largest dairy deficits, with the gap between domestic supply and demand only expected to diverge further in the period up to 2027. China alone, for example, will have a forecast dairy deficit of 26 million metric tons milk equivalent (57 billion pounds) in 2027.

Dairy surplus-deficit in 2017 and 2027

Competition to serve these markets will be fierce, however, note the authors. This comes on top of modest expectations for the dairy market as a whole. In the wake of modest growth forecasts, shifting consumer tastes (e.g. the millennial effect, a shift to healthier products) and increased competition (e.g. the emergence of niche products), demand has been slowing for several years and most signs paint a similar picture for the coming years. 

According to McKinsey & Company, the European Union and Australia & New Zealand are better positioned than the United States to serve Africa and Asia – an advantage that goes beyond geographical proximity. The authors point at trade ties in place; Australia and New Zealand have secured 11 agreements with Asia (excluding China and India), while the European Union has negotiated 11 free-trade agreements with Africa and eight with Asia (excluding China and India). 

Meanwhile, the US-China trade dispute is opening up new opportunities for Australia & New Zealand, making it more likely that the region’s surplus of 19 million tons of milk in 2027 won’t go to waste. According to Gennadi Koutchin, director at XEC Partners, it is key that Australian companies ensure they are following best practices to capture the market opportunities over the next decade. “It is important to get the product and taste right and be acceptable for the markets where a company is operating,”

Top source of competitive advantage

In a survey among diary producers, respondents were asked to identify what they believe are the top sources of competitiveness. Manufacturing efficiencies and product innovation came out on top as the top two factors, highlighting the need for the industry as a while to adopt best practices in operational excellence and supply chain, and where possible collaborate for scale and innovation in order to stay ahead of the Europeans and the Americans.

Meanwhile, having the right sales strategy on the ground in export markets ranks third. Koutchin: “Getting partnerships with the right local groups, the ones with inside knowledge who can help drive product sales on the ground, is also very important. You can’t just do it remotely.” 

One product based on milk, is set for a sweet few years in Australia. According to a new TechSci Research report, the market value of chocolate purchases will reach $4.3 billion by 2023, up from $2.9 billion last year.


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