China's couples advised to hop to it and head for the bedroom ­— But can NZ Dairy Companies show price fighting restraint and keep it in their trousers

China is taking some advice to "hop to it" in the breeding stakes.

China is taking some advice to "hop to it" in the breeding stakes.

Pope Francis often delivers impromptu remarks, some more well-received than others. In response to a query this week from a reporter aboard the papal plane about the connection between poverty and overpopulation in the Philippines, the pope replied that “Catholics have no obligation to breed like rabbits.’’ A change in stance for the Vatican in terms of his predecessors. Although China severed relations with the Holy See in 1951 after the communists took over. Emeritus Pope Benedict XVI and now Francis have sought to mend ties and it appears China is taking some advice to "hop to it" in the breeding stakes.

Pope Francis remarks “Catholics have no obligation to breed like rabbits.’’

Pope Francis remarks “Catholics have no obligation to breed like rabbits.’’

Relaxing the one child policy, was a buzz this week on social media in China with some saying they were heading for the bedroom immediately to start trying to conceive the second child that night. With the rising cost of living in China others suggested they might just hesitate and keep their trousers on and perhaps make a great success of one child in terms of education etc. Nine months from now I read we will see a 6 million baby boom in China.

China's milk formula market will likely generate close to $20 billion this year accounting for 42.6% of the global total

 

Positive for New Zealand in terms of trade? Yes of course, but only if it's managed carefully and not a brand scrap as I suspect is happening at present. Already this week Fonterra are bemoaning Synlait’s behavior for selling infant formula online cheaply. China's milk formula market will likely generate close to $20 billion this year accounting for 42.6% of the global total. The market will likely grow 15% between 2015 and 2016 that is about half the rate of 10 years ago.

Romance in Shanghai

Romance in Shanghai

As investors pile into baby formula stocks, Mead Johnson Nutrition,Synutra International, DANONE, which all rose this week on the strength of this announcement, shares in Japanese condom maker Okamoto Industries have fallen by 5% on the Tokyo stock exchange since news broke. I would still be concerned that we don't overestimate China's breeding appetite at this time and underestimate the inability of New Zealand exporters to work together.

It reminds me of the Sauvignon Blanc wine bonanza across the globe a few years back and the need to collaborate which winemakers did at this time under the New Zealand Wine Guild, of which I was the principal architect. The operating charter agreed to at the time across the industry was to promote the category collaboratively and work together, a highly successful strategy when you look back on the results.

Sadly it is the continuing story of New Zealand's commodity mentality that still hasn't learned how to sell less for more

Sadly it is the continuing story of New Zealand's commodity mentality that still hasn't learned how to sell less for more in a considered form of "orderly free enterprise". In the past we have seen decreasing margin spirals in Radiata wood, wool, meat, which have decimated industry sectors through lack of cooperation and fellowship. It's not about price-fixing but rather creating sustainable margins all the way along the value chain and inside the farm gate where we are so desperately lacking the right industry strategies. 

New Zealand's opportunity is significant but can we see it at the champagne end

Coupled with a history of industry scandals, the efficacy of the infant formula product is also a vital consideration as this boom gets underway. How well organised is the industry to capture this growth opportunity or will we stumble into it without realising we have a significant "psychic premium" to capitalise on. The price points for infant formula in China are anything from over $80 for a 900 g can from France to less than $20 from the local cows in China. New Zealand's opportunity is significant but can we see it at the champagne end of the price spectrum or will we by default opt for the bubbly end.

More babies means more formula

More babies means more formula

We have the provenance story to beat everyone, New Zealand 100% pure, clean green, although questionable up close, is still a powerful story for a mother in China. Currently there is a booming black market in Australia and New Zealand, which has left our own mothers scouring supermarkets for the remaining tins, as Chinese expats and tourists raid local shelves for private export, surely a good sign that we have a product people want. The big question is can we develop this market at the top end where we most assuredly belong.

Lets hope our dairy industry doesn’t strip its own tree bare

By 2020, it has been estimated that China will have 30 million bachelors — known as guanggun, or “bare branches.” The new two-child policy hopes to correct this. Lets hope our dairy industry doesn’t strip its own tree bare by then and find our hardworking dairy farmers without a margin they can live with.

Being the Champagne Appellation of infant formulae ought to be possible for all New Zealand Dairy Companies, but as an industry can they keep it in their trousers.