Synlait Milk is adding an infant milk formula plant on its Mid-Canterbury site to target the growing Chinese market.
The company, which started processing milk at its factory at Dunsandel in 2008, converts more than 300 million litres of milk a year into a variety of milk powder products and functional ingredients for export to functional food manufacturers.
Chief executive Dr John Penno, named Federated Farmers Agribusiness Person of the Year in 2009, was guest speaker at the Lower Waitaki River Management Society's recent annual meeting at Waitaki Bridge.
Dr Penno said it was the activity of the big population of Asia that was really starting to drive what was happening in New Zealand.
China, which was home to 60 million children under the age of 4, was New Zealand's most important market. Shanghai was a city with the population of Australia and, within five years, would have a higher GDP per capita than New Zealand. It was changing very quickly.
Each of those 60 million infants had six adults looking after it, their parents and both sets of grandparents, and there was an "enormous" concentration of income going into looking after those children and "giving them the very best".
"Traditionally, they don't use a lot of milk in their diets but they're figuring out for young kids, milk is a very good thing to give them, and it's ... driving what they buy in the supermarket and how much they're prepared to spend," Dr Penno said.
Tins of "top shelf" infant milk formula were selling in China for $NZ100 each, while the product Synlait was about to launch with a partner would sell for about $80. The milk was being bought by people who did not spend a lot on living expenses, yet were prepared to spend that on their children. Things such as this set the dairy industry apart from the sheep industry.
"It's not about industry structures, it's not about that the sheep industry's dumb and the dairy industry's smart or that the meat companies are dumb and the dairy industry companies are brilliant. It's simply about the product and the value of that product in the global market." T
here was no tariff to get the products to China - "they want our products and they're encouraging them in" - and while it cost $US200 a tonne for Synlait to get its products from New Zealand into Europe, it was less than $US50 to get them out of Lyttelton and into Shanghai.
The Chinese were interested that there was pure water and a clean environment in New Zealand. Water was the "number one" and most important resource in Canterbury. Dairy farmers were one of the biggest users of the resource and there was some "deep feeling" about that in the community, which Dr Penno said he could understand.
Over the last 10 years, a dairy industry the size of Taranaki had been laid out across Canterbury and caused a huge amount of change with which everyone was grappling.
Synlait was possibly the first dairy company to introduce financial penalties for any suppliers breaching resource consents, and farmers had been "chucked out" of the supplier base for not having high enough environmental standards.
"Big sticks" needed to be there for those that did not have high enough standards. Those sticks were betting "bigger and bigger" and that was appropriate.
Asked whether Synlait planned to buy rival dairy company New Zealand Dairies, which has a plant at Studholme, Dr Penno said he would "categorically" state it would not buy the firm.
Asked about dairy prices, Dr Penno said farmers needed to be extremely cautious about the next six months. The high dollar was likely to stay high and commodity prices had been sliding for six months.