New UHT plant construction starts
Construction is underway at Fonterra’s new UHT cream plant at Edendale, Southland following a groundbreaking ceremony recently.
“That challenge comes from the fact that a lot of regulatory change has been taking place,” he told Dairy News.
“That has brought a lot of competition, irrational commercial behaviour in the market, because there is uncertainty around who will have registration, who will not, who will have access to the market, what will that mean in terms of product availability and all those sorts of things.”
The Beingmate write-down is a “big hit” for Fonterra shareholders. Clearly there are other issues as well, but they are not the only company to have faced challenges in the China infant formula market.
But looking at the long term fundamentals, the infant formula market in China is still a very good market compared to other markets globally.
“It is the bigger infant formula market so it is hard to ignore. It is still growing because their population is still growing, demographics still suit infant formula usage and they are relaxing the one child policy,” Harvey says.
“So it is still a very good market and it is still growing, so if you are an infant formula company and you want to be in that market you have to be in China.
“It has been challenging, there will always be risks and challenges in the China infant formula market but it looks like in the next 12 months some of the uncertainty and some of the challenges should ease a bit because we have now come through a big change of regulation.
“The outlook is for a better market environment for the infant formula market which bodes well for companies operating in that market. It will not be all smooth sailing but things should start to settle down a little bit.”
Shareholders will be frustrated by the Beingmate write-down, he says
But Fonterra has faced a lot of challenges in the Australian market as well. That market has also undergone considerable change in the last 12 months.
“Fonterra has come out of the challenges in the Australian market as a bigger, more efficient player and hence that is flowing through to a better performing business in Australia.
“That is encouraging to shareholders, that the Australian business which has been challenging for a long time has started to get its act together. So it is not all bad news.”
