Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The good news is that the number of new cases confirmed inside the country declined for two days in a row last week. The bad news is that global health officials have warned the coronavirus outbreak that has killed over 2,000 people and sickened more than 75,000 could get worse before it gets better.
For New Zealand exporters, China is a key market: with a two-way trade between NZ and its biggest trading partner was worth $28 billion in 2018 and growing.
For Fonterra, which has a $4 billion business in China, the longer the coronavirus lingers, the bigger the impact on earnings.
Fonterra sells milk powder, butter and cheese to Chinese customers. Infant formula and milk powders have a longer shelf life, so they can endure a longer wait in warehouses. The story is different when it comes to supplying cheese and ingredients to major food service customers.
With movement restricted within China, the food service sector has taken a hit; what impact it would have on Fonterra’s bottom line remains to be seen.
Not all NZ exporters are as fortunate as Fonterra. This month log exports from Gisborne port were put on a six-day hold as the coronavirus spooked exporters, as the Chinese economy was brought to a standstill.
While life is almost at a standstill in some major Chinese cities, people are still eating; food is still being delivered to millions of homes. And people are communicating and chatting on social media platforms.
NZ businesswoman Jane Li says the Chinese Government’s decision to extend Lunar New Year holiday by a week hammered many small businesses.
Her business, which sells NZ dairy products, is operating. Customers are communicating via popular Chinese social media site, WeChat.
Li says things will get back to normal fairly quickly once people are allowed out of quarantine. Most people are more afraid of being stuck at home for too long than from catching the coronavirus.
In the meantime NZ exporters can watch and hope that we will soon see the back of coronavirus.
The longer it lingers around, the worse it could be for the country’s lucrative Chinese business.
