Land of milk and money

Land of milk and money

Europe''s milk producers have been liberated from production quotas after three decades, which has Polish dairy farmers eager to get in on the huge consumer market in the world''s most populous country.

Since March 31, the producers have been able to churn out as much milk as they want, and many are hoping to serve the growing demand in emerging markets, especially that of China.

"It is the perfect time for producers from Poland and other European Union member states who are adapting to the abolishing of the milk quotas system and looking for new opportunities," says Blanka Golebiowska, agricultural counselor for the embassy of Poland in Beijing.

"I have known China for 20 years, studied in Beijing in the 1990s, and therefore I can see the changes that have occurred over the past two decades. It is a market of many opportunities, which arise from the changing preferences and tastes of the Chinese people and their growing wealth," she says.

She says Polish milk producers are increasingly eyeing the size and growth potential of the Chinese market, where milk consumption is growing rapidly.

"Milk powder exports to China constitute a great opportunity for manufacturers from our country and other EU member states. This is due to, among other things, the capital-intensive nature of milk manufacturing and the quality and variety of milk products available in our offer."

She says Poland is one of the biggest producers of high-quality dairy products in Europe, along with France, the Netherlands and Germany.

"Chinese consumers are increasingly looking for high-end products, which are healthy and have an exceptional taste. This creates great opportunities for Polish dairy producers who offer exactly such products."

With China''s growing wealth and changes in diet, Chinese people have developed a growing demand for milk and milk products, which has boosted the country''s dairy consumption steadily in the past 20 years.

The demand for dairy products for infants in China will double by 2017, reaching 19 billion euros ($21.6 billion), according to the research firm Euromonitor International.

But it''s not just for infants. As Forbes noted in an article on the "coming Great Milk Battle" in China: "The average Chinese only consumes 30 kilograms of milk per year, compared to 70 to 80 kg for his Korean or Japanese neighbors. He is ready to double his intake, and he can pay for it."

However, China''s domestic production capacity has been unable to keep up with the growth in demand as well as an increasing range of dairy products such as liquid and powdered milk, ice cream and cheese.

"There are simply not enough farms to support China''s growing appetite for dairy products," says David Rao, chief research officer at Ipsos, a global market research company headquartered in Paris.

"The widening gap between milk demand and supply in China has provided huge business opportunities for foreign milk brands to march into this market to make up for the shortage."

Consumer trust in China''s domestic milk industry also was severely damaged by the melamine scandal of 2008, in which six infants died from kidney damage and 300,000 were sickened when melamine, an industrial chemical used in plastics, was used to adulterate formula to make it look like it had a higher protein content.

In addition, local milk production has been hampered by poor weather, disease and a government drive to close small producers in favor of larger operators whose quality control can be better monitored.

All this has continuously driven up the country''s dairy imports.

The most active countries in the Chinese dairy market are Australia, New Zealand and Germany, Rao says, but more new players are intensifying the competition.

"The Chinese market is still forming. The demand for milk products is still growing, which is what most producers are looking for," says Urszula Piorecki, a dairy executive who also works for the Polish Chamber of Milk promoting dairy products overseas.

It''s a chance Polish producers must seize, Piorecki says.

"In Europe we consume a lot of dairy products, but the demand is rising more slowly. We think that Chinese people will introduce dairy into their regular diet and will enjoy these versatile products at every stage of their lives."

Poland exported 406 metric tons of condensed milk and cream to China in 2012. In 2013 the volume sharply rose to more than 2,400 tons, and in the first 10 months of 2014, it rose to 7,400 tons.

"That data clearly shows that European products are trusted here. Promotional support will cement the position of European products in the Chinese market, which in turn will open more opportunities for exporters."

Piorecki says 69 Polish milk-processing plants have been granted permission to export to China, with some being large companies already present in China and other smaller companies.

China''s market is dominated by the world''s leading brands, but Golebiowska says it is time for small and medium-sized enterprises to enter the Chinese dairy market.

"That''s good news for Poland, because SMEs form the backbone of the Polish economy. The quality of products offered by such enterprises is often much higher than that offered by large businesses. Small and medium-sized companies, often family-run and with long-lasting traditions, maintain very high standards of quality. They offer really special, unique tastes that cannot be copied."

Yet despite all this, Polish milk producers and distributors say operating in the Chinese market is not easy.

"Promoting milk in the Chinese market is a challenge for us," says Li Yuqing, president''s assistant at Lezhitao Trading (Shanghai) Co Ltd, a trading company that was one of the first to introduce dairy products from Poland to China.

"We need more time and market research to better understand different Chinese regions with their varied market conditions, so as to encourage more Chinese to develop an interest in Western brand dairy products."

She says she is learning new things every day, such as adjusting to the needs of Chinese consumers through such factors as appropriately sized packaging, as well as trying different ways to increase brand awareness, which she says is very difficult.

"One of the difficulties might be the fact that it is a new market for milk and dairy, which is opposite to what we have in Europe where the tradition of drinking milk and consuming dairy products is very old. Chinese are also used to a different diet, therefore we need to introduce milk as a product that can be a part of it, and facilitate it."

She says there is no need to worry too much about competition, because in a market as vast as China''s there will be space for both domestic and foreign dairy producers to survive. Li says she is very confident Polish dairy products will find a place.

"Competition from other producers from Western countries and domestic producers is fierce, but since the Chinese market is still forming, I''m sure that the exceptional quality and taste that we offer will make Chinese consumers choose Polish products."

To promote dairy products in Poland, the Polish Chamber of Milk recently launched a "Trade Milk" campaign with the Polish Federation of Cattle Breeders and Dairy Farmers. This three-year campaign also will present a wide range of products to the Chinese market.

"The campaign is supposed to strengthen the positive image of our dairy products in the Chinese market, showcasing their high quality, our rigorously enforced quality and safety standards, and the products'' nutritional value," says Piorecki.

"We are at the stage of getting into China. There are some producers who export their products to China but these are small quantities. We also have had companies from China visit our factories. It was a great experience for both sides. We are now at the stage of getting to know each other''s businesses and hopefully Trade Milk will help with this."