Global Milk supply has once again seen an excess of supply in 2015. Now this may come as a shock for some, but this is a global reality.
http://apps.fas.usda.gov/psdonline/circulars/dairy.pdf
The Milk Powder Disparity
In 2015 NZ was the number one producer of Powdered Milk in the world.
http://www.indexmundi.com/AGRICULTURE/?commodity=powdered-whole-milk&graph=PRODUCTION-growth-rate
Compare this to overall milk production and you can start to see where the big dairy companies of the world may choose to invest in over the next decade.
New Zealand Produces roughly twice as much milk powder as the EU, yet New Zealand produces less than 14% of the milk that the EU does.
What does this mean? Well obviously it means New Zealand has the jump on the rest of the world. It also means that the rest of the world will start to catch up as you can see from growth rate graph on the same link.
Now take into consideration that the two biggest exporters of milk powder to China re Switzerland and Ireland and you might start to understand the scope EU producers have in penetrating the Chinese market.
We live in a bubble in Australia if we believe that Australian and New Zealand products are the future No1 preferred product in China.
I see the EU ramping Milk Powder Production up substantially in the near future. Given that the liquid milk market is rather soft globally it only makes sense that they switch to the growth segments.
The Big Fish
Of the Top 20 dairy companies in the world only one is from our region. Fonterra is the 4
th largest.
https://d21buns5ku92am.cloudfront.net/27385/images/174993-Rabobank Global Dairy Top 20 List 2015-cbffa5-large-1438159675.PNG
If you follow Fonterra’s progress during 2015 you will note that not all things have been rosy in the dairy industry.
With respect to the future of milk products, their future production and the penetration of international markets, you can guarantee that the Company’s on this list are going to control it.
Unless A2M is happy to grow at a more controlled or gradual rate, I believe a serious relationship with one of these Top 20 Companies will be on the cards.
A2M – A Premium Product
A2M is marketing itself as a premium product. It is for this reason that I believe it has solid growth prospects in the future. However, I do not believe it will receive a free ride, void of pressure from increased competition.
SUMMARY
The revaluations of a number of Australian and New Zealand Dairy Companies is in complete contrast to both the global demand for milk and other dairy products. Competition for Milk Powdered Products into emerging markets like China will come from the EU and USA
However, A2M marketing its products as a premium product with a point of difference will I believe give it a long term shot at maintaining healthy growth. I do not expect this recent growth to be sustained for a long period as the macro pressures of a much bigger milk production industry will provide stiff competition along the way.
(20min delay)