Markets/Consumers Challenges continued...
Demand for butter exceeds what New Zealand can produce
Figure 1 – Estimate of demand growth and volume for dairy products
Due to the increased demand of dairy products, and most likely butter also, it is possible that the demand exceeds what New Zealand can produce. If this happens then importing countries will look elsewhere and an emerging competitor could take Fonterra’s place. Although, this isn’t likely to happen as Fonterra’s share of the global dairy exports was 21 percent as at 2011/2012. Fonterra says in the Shareholder Prospectus (2012) that they are “well placed to respond to this demand growth.”
More competitors within or outside of New Zealand
Figure 2 – Shows Fonterra’s competitors on a global and brand scale.
Figure 2 shows Fonterra is the world’s largest milk processor at 21.6 percent. Dairy Farmers of America is Fonterra’s biggest competitor in this field. This graph shows Fonterra’s competitors worldwide. The second graph shows Fonterra’s share of global dairy exports – 21 percent as at 2011. Fonterra also has a 51 percent share of butter in the global export scale, which conveys that they are in the lead in terms of butter exports. This is subject to change, however with all the new competitors that may come into the markets, Fonterra is only going to get stronger so it is unlikely that this will be a major threat in the future.
Move away from butter and emerging markets
A move away from butter and emerging markets are the biggest challenges from the consumers/market driver. There is a struggle to shed butter’s commodity image and to lose its negative reputation as being an unhealthy product out the window. However, despite this perception of butter, studies have found that butter is not detrimental to health and in fact does have benefits. “Saturated fats from non-processed food is not harmful and probably beneficial” said Dr Aseem Malhora, specialist at Croydon University hospital, he goes on to say that butter can even be good for the heart. Masterjohn (2012) found that the average store bought butter easily meets the vitamin E requirement.
Dietary changes appear to be shifting universally toward a diet dominated by higher intakes of animal and partially hydrogenated fats. China specifically has increased their animal-source food intake explains Popkin (2006). According to Popkin, Adair, and Ng, (2012), increased consumption of animal-source food products has both positive and adverse health effects. For example, butter can be helpful for poor individuals in developing countries whom need a few extra grams of animal fats as it can improve the micronutrient profile of their diet. However, excessive amounts is linked with excessive saturated fat intake and increased mortality.
Statistics New Zealand shows in ‘Total Value Exported of Specific Goods’ that in 1985 the butter exported was 47% of the total dairy exported and brought in 670 million dollars. In 2003, the butter exported was only 20% of the total dairy exported but it brought in 933 million dollars. This shows that in 1985, butter was the dominant product, there was no competition for it. As other products derived from butter come in, such as margarine and olivani etc, the percentage of butter exports dropped over half. This is likely to happen again when emerging markets come in to supply for China. However, at a time of high prices of butter in America, Director of marketing for Cabot Jed Davis disagrees, he says that even when butter alternatives are on the market “People may have cut back a little bit, but they haven’t abandoned butter.”
Conclusions:
Since China’s demand for milk and milk products is rapidly increasing, the danger for butter exports is that Fonterra might produce a product more suited to China’s needs, and the demand for butter might lessen significantly. As explained earlier, Chinas demand for milk and milk derived products is increasing at a phenomenal rate. This may have implications for butter as Fonterra might shift their focus to supply for Chinas new demand and create new products. The likelihood of this happening is around 70% as supported by Fonterra’s own estimate and Statistics New Zealand. The impact of this happening on the butter exports is detrimental, which is why it I perceive it to be a future challenge.
By Zoe Foreman
