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Fonterra Plans to Invest in Indonesia
March 14, 2016

New Zealand dairy giant Fonterra plans to invest more in Indonesia on the back of strong performance in the country, with constructing an on-farm dairy processing site among the company’s possible investment options.

Fonterra chief financial officer Lukas Paravicini told The Jakarta Post on Thursday that his firm planned to strengthen its grip in Indonesia, where annual milk consumption percapita hit 12 liters-low.

“Yes, we will look at investing further in years to come,” he said when asked if his firm was interested in developing an on-farm dairy processing facility in Indonesia.

Paravicini said that his company’s business in Indonesia, run by PT Fonterra Brands Indonesia, was growing at a level higher than the country’s economic growth of 4.79 percent last year and that it aimed to book double-digit growth in the coming years.

If an option to build an on-farm dairy processing facility is taken, Fonterra will likely be able to run its business in the country more efficiently as most of its milk powder is still predominantly imported from New Zealand.

New Zealand’s milk production hits around 20 billion liters a year, of which around 95 percent is shipped for the overseas market. The figure accounts for 60 billion liters of global tradable milk, from global milk output of 400 billion liters.

National Dairy Council (DPN) chairman Teguh Boediyana said he welcomed investment plans to develop local dairy cattle farming, as it could help reduce the country’s dependence on imports and provide jobs for people in rural areas.

“Our local dairy farm can supply only 20 percent of national demand for milk,” he said.

“If there is no any policy to support our dairy farm, we’ll likely become a net importer by 2020.”

The number of dairy heads of cattle in the country slumped to only 300,000 in 2013 from 447,000 in 2011, according to DPN data.

In its country of origin, Fonterra partners with local farmer shareholders to produce about 16 billion liters of milk each year.

NH Korindo Securities Indonesia research head Reza Priyambada said that having local on-farming in Indonesia would eventually help enlarge Fonterra’s market share as most Indonesian consumers, both affluent and middle-income, were price sensitive.

“If they see that Indonesia is capable of providing raw materials in line with their standard, sourcing raw materials from Indonesia could lower their products’ prices and make them more competitive,” he said.

Paravicini informed that Indonesia was a very competitive market and well-positioned for his company to leverage its regional position.

“We will look at Indonesia, how we can use Indonesia as a base for other countries to grow,” he said.

In September last year, Fonterra launched its first Indonesian manufacturing plant located in the West Java industrial city of Cikarang, functioning to blend and pack milk powder for the Anmum, Anlene and Boneeto brands.

The plant cost US$36 million, Fonterra’s largest investment in Southeast Asia last year.

The utilization rate of the manufacturing plant has hit 60 percent of its full capacity of 20,000 tons of milk powder a year, or equal to some 80,000 packs of the company’s consumer products.

Paravicini said that his firm aimed to run the plant at full capacity in the next six to 12 months to grab a larger sales portion in the market.

In Indonesia, Fonterra’s brands compete with brands such as Prenagen, HiLo and Milo.

Source – Dairy Business



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