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Fonterra Has Great Cheese Expectations For South Korea
January 20, 2017

Fonterra is out to be the big cheese in Korea, following the opening up of the economy through the signing of the free trade agreement (FTA) with New Zealand in December 2015.

Exports of all Kiwi products have grown by 16 per cent since the signing, but for Fonterra cheese in particular shows the greatest promise.

Already Korea is New Zealand’s fifth largest cheese market, worth $70 million a year and comparable to returns from the United States.

Fonterra’s South Island general manager Tim Keir and Clandeboye’s site manager Steve Mcknight about to tuck into some …
Fonterra’s South Island general manager Tim Keir and Clandeboye’s site manager Steve Mcknight about to tuck into some pizza with the company’s mozzarella cheese on it, now sold in Korea.

Fonterra is predicting bigger gains as both tariffs and quotas are gradually removed.

New Zealand’s new annual duty free quota of 7000 tonnes of cheese to Korea will increase by three per cent a year.

Tariffs on cheddar and block mozzarella will be removed after seven and 12 years respectively, with all cheese tariffs eliminated and quotas removed after 15 years.

Quotas and tariffs on butter, anhydrous milk fat and infant formula will also be phased out over 15 years.

Fonterra’s country manager Korea Jason Murney said it was difficult to put a figure on how much the co-operative might earn off dairy products in the future because commodity prices rose and fell, and were affected by exchange rates.

He predicted export volume would double in the next five years.

“Korea has traditionally used tariffs to protect its domestic industry but there has been a general decline in local milk supply in recent years,” Murney said.

A small amount of pizza-style cheese was manufactured in Korea, but demand for mozzarella now outstripped supply.

The main competitors were European and United States. Both had completed their FTAs two years before New Zealand so their tariffs were lower.

Murney said New Zealand’s share of the Korean cheddar market had grown to over 60 per cent in 2016, up from 50 per cent in 2015.

So far Fonterra has developed a new cheese specifically designed for use on pizzas, which will be launched in Korea. It had expanded its Korea team and was investing in a warehouse so that it could import and distribute more high value products itself.

Murney said Korean consumption of dairy products was rising. In 1990 Koreans consumed 43.8 kilograms liquid milk equivalent per capita but by 2014 that had risen to 72.4kg.

The access under the FTA allows Fonterra to invest in product and supply chain innovations, and implement a strategy to transition its Korean business from low risk ingredients to higher value food service.

By: Gerard Hutching


Summer 2018